Will the Yen Spoil the Party? | Stock Market Investing

Tuesday, May 6, 2008 | Home | Andy Mayo

I've commented a number of times in the past that there is a perfect negative correlation between the strength of the Japanese Yen and the US stock market.  When the price of the Yen falls, US stock indexes rise and vice versa. 

The Yen topped out in March as our stock market hit its low for this year (so far).  Since then, the Yen has declined and the US market has roared ahead -- up some 11% from the low.  Not too shabby.  But is the Yen now ready to resume it's upward trend?

In the chart below, the vertical lines indicate the change of direction -- red dotted lines mark the beginning of a rise in the exchange traded fund that tracks the Japanese Yen (FXY) and the corresponding fall in the exchange traded fund SPY which tracks the S&P 500 Index.  Green dotted lines show the reverse. 

Recently, the FXY dipped below its 50-week moving average and then rebounded.  It's definitely something to keep an eye on as market internals have weakened a bit since my last post.

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