New Low for the USDJPY Forex Pair and Comparison to SPX

Oct 25, 2010: 2:12 PM CST

File this under “In case you missed it,” the US Dollar hit a new fifteen-year low this morning and has held under that zone for the remainder of the trading session so far.

Let’s take a look at the monthly USD-JPY (US Dollar / Japanese Yen) Monthly Chart, see the break to new low, and then compare that FOREX pair to the 15-year ups and downs of the S&P 500 to find a correlation – if one exists.

This is just a simple, no-thrills price chart with a couple of trendlines added to highlight a descending triangle long-term potential price pattern.

If you look closely, you can also see a multi-year head and shoulders price pattern from 2001 to 2004 which officially achieved its downside price projection target in 2008.

The 100 level was critical, multi-year support starting with the end of 1999 and carrying forward almost ten years until the breakdown in 2008.

An initial ‘test-break’ occurred in early 2008 with the final and official break triggering in late 2008 during the heart of the Financial Crisis.

Remember, this FOREX pair starts with the US Dollar (unlike, say, the Euro-USD pair), so a rising trend indicates a STRONGER dollar against the Yen while a falling chart represents a WEAKER US Dollar against the Japanese Yen.

And just to flip the terms around, a rising trend represents a WEAKENING Japanese Yen against the Dollar just as a falling trend represents a STRONGER Yen against the Dollar.

The main idea is that price broke 15-year support today, which is a significant development, and the explanations mostly focus on the Federal Reserve’s expected Quantitative Easing (part 2) policies.

The April 1995 chart low was 81.120, and today’s low – so far – is 80.406.

While there’s quite a few lessons to learn just in the price chart above – specifically in respect to price patterns and long-term support levels (breaking), let’s now switch gears to see what the relationship is between this FOREX pair and the S&P 500.

As far as I can tell with a quick price chart glance, there is no major meaningful correlation between the FOREX pair and the S&P 500.

When the pair bottomed in 1996, the S&P 500 embarked on a massive bull-run from 500 to 1,500.  The pair peaked in August, 1998 ahead of the 2000 stock market peak.

Strangely enough, the pair bottomed in 2000 at the market’s peak.

Then, the pair made only a slight swing high at the market’s bottom in 2002 and chopped aimlessly while the S&P 500 doubled in value from the 750 level to the 1,570 level in 2007.

The pair declined through most of the 2008 sell-off, and continued declining through the strong 2009 rally into present.

Correct me if I’m wrong, but I see no major positive or negative correlation between the USD-JPY pair and the S&P 500.

So, while the FOREX pair has hit a new 15-year low, it’s not as easy to draw a correlation to what may happen next in Stocks.

In general, or at least in the current environment, a falling dollar is a generally good sign for stocks.

Anyway, I wanted to share these charts and call your attention to these developments – though the excitement may be contained mostly to the FOREX trading community.

Corey Rosenbloom, CMT
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11 Responses to “New Low for the USDJPY Forex Pair and Comparison to SPX”

  1. David O. Says:

    Thanx Corey…you can take the rest of the day off with pay!


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  3. Ileneca Says:

    Could you superimpose a chart for the same period with the dollar alone? I think that would be interesting – Ilene

  4. S. Speculator Says:

    They don't correlate that well, but if you look closely changes in USD/JPY trend presage turns in S&P. I remember 3-4 years back USD/JPY was often used by analysts on TV to forecast US stocks.

  5. S. Speculator Says:

    Head and Shoulders patten should be banned in the technical analysis community. It just gives a satisfaction of 'being in control' or a false sense of knowing how markets work. It has zero usefulness in practical trading matters.

  6. TraderTopGun Says:

    Great presentation Corey

  7. CumbucoTrader Says:

    Interesting post. Ashraf Laidi (!/alaidi) has been speculating we may get BofJ speculative easing tomorrow, and moreover USDX is showing signs of a bottom ahead of next week's Fed (possibility of less-than-expected US QE?). I posted some about this on the blog last night, along with some stock charts.

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