As I noted last weekend, during trending markets I tend to ignore other asset classes as proxies for stocks because the price action in equities speaks for itself, and the market confidently brushes off bad news. During corrective markets, though, uncertainty reigns supreme and asset classes tend to move together more tightly. Last weekend, we observed the Euro and Aussie currencies, usually excellent gauges of global risk appetite (or lack thereof), print potential bottoming candlesticks at major support levels. The equity markets seemed to have taken their cues from that development with the reversal and sharp bounce higher last week. So, let’s follow up on the Euro and Aussie versus a traditional safe-haven for risk aversion–The Japanese Yen.
As you can see below with both daily charts updated on early-Sunday evening, after some churning on Thursday and Friday of last week it appears there may be some gas left in the tank of these counter-trend rallies. Despite the exuberant bounce last week, both the Aussie and Euro remain in steep corrections versus the Yen. The logical target for a continued bounce would be the declining 50 day moving average.
An important point to note is that those hammers and long-legged doji’s proved to be “a” bottom, given the confirmation to the upside, but that does not mean we should get too cocky just yet about them being “the” bottom over the next few weeks. The overarching correction should be respected above all else, until more technical feats are accomplished by the bulls.
That said, I am going to continue to monitor these crosses as we work through the oversold bounce phase to see if equities keep keying off the major currencies.