As Dow Breaks Bear Stearns Low, Euro / Yen Hits High

Two significant milestones have been reached in the financial markets today, one in stocks and one in currencies.

On an intraday and possibly even on a closing basis, the Dow Jones Industrial Average has broken the Bear Stearns low. It was in the middle of March that the Bear Stearns debacle became public, sending the Dow to a low of 11,731. That level was broken within the first minute of trading today.

In the currency market, EURJPY hit a record high of 169.46.

The parabolic move in these two assets are driven partially by the 3 factors; the rise in oil, the technical break of a previous low and news that Goldman Sachs (GS) put Citigroup (C) stock on its sell list and downgraded several other brokers. This drove Citigroup stock to a 10-year low.

The market was already bearish dollars following the FOMC rate decision. Today’s breakdown in US stocks and mixed economic data has sent the US dollar even lower. GDP and existing home sales were stronger than expected, but jobless claims and the help wanted index deteriorated, pointing to a weak non-farm payrolls report next Thursday.

Meanwhile it is interesting that EURJPY, which is often times considered a carry trade currency, is not necessarily moving in lockstep with the Dow. It did give back some of its gains but given the move lower in USD/JPY, it is clear that the rise in EUR/JPY is driven by the move in the euro. The relationship between the Dow and carry trades has broken down as the monetary policies of central banks around the world diverge.

Comments

[Coelacanth]

The EUR/JPY looked ridiculous up there in light of struggling global equities. Seems like ultimately it might gun for 170.00. I might be looking to get short around 169.95 - 170.00 depending on what the ECB does and says next week. If the IFO reads of last week are any indication it looks like the euro-zone is finally cooling off.

Carry traders have had it good for a long time. Yen crosses are looking decidedly wobbly and a rude wake up call may be just around the corner.

[Ernest Wong]

The chart patterns of EUR/JPY and CHF/JPY suggest more upside move. Stay long!