• 369 days Will The ECB Continue To Hike Rates?
  • 369 days Forbes: Aramco Remains Largest Company In The Middle East
  • 371 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 771 days Could Crypto Overtake Traditional Investment?
  • 776 days Americans Still Quitting Jobs At Record Pace
  • 778 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 781 days Is The Dollar Too Strong?
  • 781 days Big Tech Disappoints Investors on Earnings Calls
  • 782 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 784 days China Is Quietly Trying To Distance Itself From Russia
  • 784 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 788 days Crypto Investors Won Big In 2021
  • 788 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 789 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 791 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 792 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 795 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 796 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 796 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 798 days Are NFTs About To Take Over Gaming?
  1. Home
  2. Markets
  3. Other

Old School Currency Parables

Jonah and the whale

And the LORD commanded the fish, and it vomited Jonah onto dry land. - Jonah 2:10


Delivered from the swirling seas of U.S. dollar strength, the euro rose sharply over the past six sessions - roughly up 4.25% through Monday's close. And although it's just a blip on the 11 month downtrend that saw the euro lose nearly one quarter of its value, the winds have shifted for the moment in the currency markets with all the wrath and fury of Old Testament scripture.

A few weeks back, we carried a nautical theme through the story of Jonah (see Here), speculating that the currency markets were poised for significant trend reversals - with a technical set-up in the yen similar to the upside reversal in the summer of 1998. Two weeks ago, the yen was flirting below long-term support as the currency tested the lows from early December. While the subsequent upside move in the yen (~1.25%) has been weaker than its European counterpart, it currently resides above long-term support and is positioned going into the end of the month with similar positive strength and momentum divergences - with the lows from last December.

Yen and Nikkei Monthly Chart
Larger Image

1998 Yen Daily Chart
Larger Image

Yen 2008 versus 2015 Chart
Larger Image

Considering our long-term read of the dollar (see Here), the structural and pattern similarities with the yen - circa August 1998, dovetails into a general reflationary thesis that would be driven on the back of broad dollar weakness. As mentioned in the past, the yen has exhibited strong positive correlation with the trends in precious metals over the past four years. At this point, we suspect this relationship would maintain correlation and continue to look for gold and silver to lead the respective reflationary pivot in assets most closely tied to rising inflation expectations.

Yen and Gold Weekly Chart
Larger Image

Over the past few months - where we have expected to see a correlation shift, is between the extreme negative correlation between the yen and the Nikkei. Overall, this longer-term reversal has started to materialize, with the yen treading water over its December low - while the Nikkei has rallied another 10%. Although we suspect it will be sawtoothed moving away from the correlation extreme, we still believe both assets will trend together over time for a spell. Our 1987 Nikkei comparative continues to be an excellent guide towards future expectations in the Nikkei - as it has been over the past year.

Nikkei and Yen Monthly Chart
Larger Image

Nikkei 1980-today Chart
Larger Image

Nikkei 1987-1989 versus 2014-2015 Chart
Larger Image

 

Back to homepage

Leave a comment

Leave a comment