Does Yen Euro Cross Lead Market?
I heard on CNBCW an analyst who stated that the Euro / Yen currency cross rate moved a little bit (about an hour, so he said) before markets turned. Unfortunately I don’t have a source for charts that can be inserted in a posting for the Euro / Yen cross rate. That leaves me with plotting FXE and FXY vs stocks as a sort of proxy. While I’m not seeing a lot of ‘lead time’, it is an interesting correlation. (2 possibles on the lack of lead time: Perhaps the move is happening during European market hours (when FXY and FXE are not trading) or perhaps you really need the actual EUR – YEN cross rate to see it.
These are saved charts, so GIFs, which means they look a bit sketchy in the compressed size. To get a cleaner readable image, click on the graph.
Clearly the Yen (black line) is moving as the inverse of the Nasdaq. The PSQ has some volatility artifacts in it; so while the drop of the Nasdaq in the “Flash Crash” goes flat on Friday, the PSQ still rises a tiny bit reflecting the increased volatility premium in the options and futures contracts used to make that synthetic short Nasdaq fund.
Comparing the Yen with the Nasdaq, it is a very close mirror image, at times of high market rate of change. I suspect this is an artifact of the Yen being used for “carry trade” transactions by large trading firms. On quieter days, the central banks look to do a better job of keeping the currency fairly flat, thought it still seems to ‘ripple opposite to the market trend.
Looking at the Euro line, I don’t see much in it that would change the “yen inverse” relationship enough to give an early warning. Mostly it looks like it ‘sort of tracks the stock market’ but with a general downward bias ( for now).
If anyone has access to a EUR-YEN cross chart, especially for European markets or market hours, it would be interesting to take a look.
In some ways I find this Euro Yen Swiss Franc Gold chart more intersting. Notice that the Yen spikes on the market crash, then we wait the “three day settlement period” for the sales of all those shares to settle and the cash to hit accounts as “Settled” and ready to trade. On THAT day, Gold spikes up. The Swiss Franc moves hardly at all. Either Swiss bankers are better at holding their currency steady, or the “Whales” doing this trade like the Yen and Gold… Oddly, the Euro has a slight inverse relationship to the Yen (though in an overall dropping trend).
Nice little trade idea to put in the kit for “the next crash day”. Immediately put on a gold or gold options trade then just wait 3 days to sell out…
So, taken together, the set would be:
On a crash day, short yen, long gold, wait 3 – 4 days, close positions.
For ongoing observation, here is a live version of that same chart.