All day long we hear the talking heads in the media talk about earnings, book value, and P/E ratios, but at this time the market moving institutions only seem to care about the strength of the Japanese Yen. Just look at the chart below, you will see how a chart of the USD/JPY (U.S Dollar vs the Japanese Yen), is trading in lockstep with the S&P 500 Index.
Last year, the major stock indexes would tumble on the back of a stronger U.S. Dollar, now they rally. The currency market controls the financial world and this chart makes that case very evident. The daily chart is signaling further downside in the USD/JPY so this stock market should follow with further downside over the next few days. Many investors are now talking about the non-farm payroll report on Friday, but they should be talking about the Japanese Yen.
It’s all about the carry trade. A carry trade is an investment strategy that allows an investor to borrow money in a low-yielding currency, they can then convert and buys bonds in a high-yielding currency to gain profits from interest rate differentials. This is what the market moving institutions that move markets care about right now.