DOW And USDJPY Relationship

Today I will do a little study on the relationship between Dow Jones Industrial Index and the USDJPY.

There is a saying in the market that when JPY carry trade unwinds, stock market goes down.

From the chart above, we see that USDJPY is in a well defined down trend since Jul 07.

It seems that whenever the USDJPY hits the down trend channel, we have some sort of reversal.

On Aug 16 07, 26 Nov 07 and 24Jan 08, USDJPY hits the lower end of the down trend channel and DOW made a recovery.

On 14 Oct 07 and 27 Dec 07, USDJPY hits the upper end of the down trend channel and DOW weakens.


Now we are seeing the USDJPY near the lower end of the down trend channel. Even after FED reduces the interest rate by 50 basis point, JPY did not strengthen much.

If the market behaves according to the last few instance, we may see the DOW bounce up and USDJPY to test the upper end of its down trend channel again.