The S&P 500 ended the day unchanged, held steady by Nvidia (NASDAQ:NVDA) 4% surge. Despite Nvidia's strong performance, the broader market struggled, with 342 stocks declining versus just 159 advancing. Risk indicators also climbed, as evidenced by higher readings on the CDX HY Spread index, the 1-month implied correlation index, and the VIX, which measures market fear.
After a brief respite due to Japan's market closure on Monday, the focus shifts back to a busy economic calendar. Yesterday, Japan released its Producer Price Index (PPI), shedding light on inflationary pressures. Today, the US will unveil its PPI data, followed by Japan’s GDP report, which will provide insight into its economic growth.
Wednesday will bring the US Consumer Price Index (CPI) and Thursday will feature US retail sales and continuing jobless claims. Expect a flurry of significant updates in the coming days.
The big question is, what will this news tell us? Will it suggest that Japan’s central bank (BOJ) needs to keep raising rates or that the US central bank (Fed) needs to cut rates? Or maybe it will suggest that the BOJ should cut rates and the Fed should keep them the same. It’s like a game of roulette. Round and round the data goes, and where it stops, no one knows.
Yen Pairs May Hint at Market's Next Move
I guess that by Friday, the USD/JPY will either be much higher or much lower, and the stock market will probably follow that move. The important level seems to be 147.85 on the USD/JPY. If it goes above that, it might go back to 149 or even higher.
But if it doesn’t, we might go back to the lows we saw on Monday. It looks like a triple-top pattern (a chart pattern that traders watch), but we won’t know for sure until it either goes above 147.85 or drops below 146.25.
If the AUD/JPY is sending a signal, then it’s signaling that the USD/JPY might break lower in the coming days, based on a rising wedge pattern (a chart pattern that often predicts a price drop).
It looks similar to the MXN/JPY as well (which also shows a similar pattern that could suggest a price drop).
It also looks like the 10-year rate has formed a head and shoulders pattern (a bearish sign), with the neckline at 3.89%.
In the meantime, we have what looks like an upward-sloping handle forming on the S&P 500 Futures chart.
Along with that, there’s still a giant gap down at 5,200 that needs to be filled from last week’s jobless claims “miss.” This was certainly one of the more perplexing 2% rallies I’ve seen in recent times.
If the data suggests a USD/JPY drop, it’s bad for stocks. If the data points to a USD/JPY rise, it’s good for stocks. It’s that simple right now.