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Yen vs. SPU– Break down of Inverse Relationship

Currencies / Japanese Yen Jun 11, 2008 - 04:48 PM GMT

By: Black_Swan

Currencies Give your risk thermometer a good shaking because mine are giving me conflicting readouts. Stocks, the primary measure of risk-taking levels in the financial system, are tumbling. The Japanese yen, now a secondary measure of risk-taking levels in the financial system, is also tumbling.


So where’s the conflict, you ask? Normally, these two gauges move inversely to one another – one rises as the other falls and vice versa – based on the risk environment. But right now, they’re moving in roughly the same direction – down.

What’s the deal? As we see it, stocks are reacting more appropriately to the concerns still plaguing financial institutions, corporate earnings and the U.S. economy. The Japanese yen, which would normally prosper as aversion to these concerns rises, isn’t so much playing along.

For about a month and a half, stocks and yen have turned over together. For the two years prior these two moved very much the opposite of one another. Might it be time the Japanese yen plays catch up? Sure. But it’s going to need to shake loose of its dollar connection. Right now the dollar connection is the primary driver behind the yen, up and down. And if we HAPPEN to be at a dollar-bottom that lasts a while, the yen may have a tough time wiggling free.

Jack Crooks

Black Swan Capital LLC

http://www.blackswantrading.com/

Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

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