The Yen, the USD, and SPX...

The Yen, the USD, and SPX...

You have been and will be reading about the plunge in the Yen vs. the USD. YEN is trading near its 1986 levels versus the USD, and today took out its July 2024 prior significant low .

Who Cares?

We might have to care because the last time this happened-- in July 2024, the Bank of Japan and the Fed intervened to buy YEN against the Dollar (in other words, they sold USDs to buy YEN), which triggered a series of dominoes that negatively impacted the SPX to the tune of an 11% correction in the latter. 

My suspicion is that the BOJ and the Fed are concocting some sort of intervention to support the YEN and to try to knock the stuffing out of the speculative short attack on the YEN. I wouldn't be surprised to see the battle begin on Wednesday evening with central bank intervention to sell dollars against the yen that extends through the weekend. 

That said, my big picture pattern work in USD/YEN indicates that the Dollar could race vertically higher (YEN implodes in a disorderly manner) from 162.40/50 toward a measured technical target zone of 182 to 187, which, if reasonably accurate, will mean the central banks will have to expend serious money and effort to halt powerful Yen weakness. 

The battle between the central banks and the Yen speculative shorts will be instructive on many levels, not the least of which will be how the new Fed Head Warsh views USD strength in general. The amount of money the Fed allocates to helping the BOJ stabilize and reverse YEN weakness will provide us with clues about Warsh's commitment-- with Treasury Secretary Bessent-- to seek a weaker Dollar (beneficial to US economic fundamentals) while talking about preserving a strong one for public consumption. 

How the equity markets, US Treasuries, Gold, and Bitcoin react to a period of foreign exchange turmoil also will be instructive. Will such an episode send capital searching for safety? If there is an event that COULD trigger a reversal in directional control of Gold, Silver, and Bitcoin, this might serve as a catalyst.

This is just me thinking out loud, but forewarned is forearmed, as they say!

My attached Weekly Charts of both the USD vs YEN and the SPX are shown below...  

Maybe lightning doesn't strike twice in quite the same way, but if it does resemble what happened in the past, this intervention scenario has the potential to disrupt markets... MJP