USD/JPY highly correlated to S&P 500 and the Dow Jones - BBH

Ross J Burland FXStreet

On a purely directional basis, the dollar-yen exchange rate has become highly correlated with both the S&P 500 and the Dow Jones Stoxx 600.

Key Quotes:

"This is what one would expect to be the case if the yen was used as a funding currency. Over the past 30-day, the correlation between the yen and the Dow Jones Stoxx 600 is near 0.88. It was inversely correlated in July and had approached correlation levels in May and June.

The correlation of the S&P 500 and the dollar-yen exchange rate on a directional basis (correlations conducted on the level of the S&P 500 and the dollar) is near 0.82 over the past 30 days. It had been inverse from early June through mid-August.

The strong correlation between the dollar-yen exchange rate and the S&P 500 and the Dow Jones Stoxx 600 is consistent with what one expects if the yen was used as a funding currency to buy shares. However, the hypothesis breaks down when it comes to emerging market equities. The correlation between the dollar-yen exchange rate and the MSCI Emerging Markets equity index -0.25 over the past 30 days and -0.54 over the past 60-days. One potential explanation is that while the yen is used to fund US and European equity purchases, it is not used to fund emerging market equities. The dollar may be used to fund such purchases.

The JPY108 area held back in April. Last year the greenback briefly traded below JPY100. A break of JPY108 would target JPY107.25 initially, but the JPY106.50 area may be of greater technical significance. The correlation between the dollar-yen exchange rates and US 10-year yield appears more stable and just as strong as with US and European benchmarks (30-day 0.84, 60-day 0.73). The correlation between the dollar-yen exchange rate and the US 10-year yield is more robust in that the correlation between the percent change of each is also highly correlated ( 30-day 0.84, 60-day 0.75).

Geopolitical anxiety tends to be intense but short-lived. That seems to be what the price action of the Korean won and Korean equities is suggesting as well. In the medium and longer-term, the dollar-yen needs higher US interest rates to find better traction."

Author

Ross J Burland

FXStreet

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

AUD/USD leans on a China prop that's quietly buckling

The Australian Dollar spent Monday trying to talk itself into a recovery, and the tape was not buying it. AUD/USD has ridden a China-and-commodities narrative for months, one that conveniently glossed over how shaky both legs of that trade have become, and Friday's Nonfarm Payrolls print finally forced a reckoning. US employers added 172K jobs against a consensus near 85K, with roughly 93K of upward revisions to prior months and the unemployment rate steady at 4.3%.

USD/JPY: Japanese Yen ignores every reason it has to strengthen

There is a strange disconnect running through the Japanese Yen right now, and USD/JPY parked just above 160.00 captures it perfectly. By any domestic reading the Yen should be firming: first-quarter Gross Domestic Product beat expectations over the weekend at 0.5% on the quarter, the Bank of Japan is widely expected to raise rates at its meeting on June 18, and authorities have spent the past week jawboning a currency they clearly want stronger.

Gold faces initial resistance near $4,350

Gold manages to reclaim the $4,300 mark per troy ounce and above on Monday. The yellow metal’s small uptick comes on the back of modest losses in the US Dollar, while traders continue to follow geopolitical events in the Middle East and the likelihood of a tighter-for-longer Fed.

Strategy resumes BTC accumulation with 1,550 Bitcoin purchase, adjusts STRC dividend schedule

Bitcoin treasury firm Strategy bought 1,550 BTC last week for roughly $101.3 million, according to a Form 8-K filing on Monday. The purchase, made at an average price of $65,332 per Bitcoin, was funded through proceeds from the company's at-the-market equity offering program.

$1.75 trillion: Is SpaceX the most popular IPO in history, or the most engineered?

On June 12, the largest initial public offering (IPO) in history is set to hit the tape, and almost nobody is asking whether the price is right, because almost everybody already wants in.

The US economy defies the rules: 100 days into the Oil shock and the recession signal is still missing

More than three months after the start of the Iran war and the resulting disruption to global energy markets, the US economy continues to display remarkable resilience. The conflict has triggered a sharp rise in Oil prices, reignited inflationary pressures and fueled widespread concerns about a potential economic slowdown.