Early Market Update - FX Relationship Flip

Last night in the market wrap I said the following..

The one thing Bernie gave the market yesterday...

"This was my question earlier, the answer, some form of certainty in the form of a date. 

If Bernie tells the market when he will do what, you'll have a happy market, even if they don't like what he's doing and in some form, that's what we got today.

I think that is worthy of a rally/bounce. The market didn't end on a good note today, but it ended on an improved note, I'd guess we see some more downside and maybe some basing activity tomorrow"

So here's what I see and I do think we are getting some basing activity, but reversals as always are more of a process than an event, meaning more "U" shaped than "V" shaped.

Usually the market and risk assets like commodities have an inverse or directly opposite relationship with the $USD, but over the last month+ that hasn't been true, as long as a strong USD was leading the USD/JPY pair, then the market moved with the $USD which is uncommon, it looks like that is ending and if so, then the signals we have so far this morning are looking stronger for the market, let me show you.

 This is a 30 min chart of the Yen in green and the SPX in red, as long as the USD was up and the yen down (USD/JPY up), the market moved up, that unusual correlation of the last couple of months just flipped over on its head as you see to the far right.

This is what the new correlation between the Yen and SPX looks like , more typical, but the $USD is more important.

On this 2 min chart of the $USD (green) vs the SPX (red) you can see the correlation was unusual to the left, it had been that way for months, again it has just been flipped on its head so that strong 15 min positive $USD divergence that we've been tracking, didn't help the market, but hurt it as the correlation between the $USD and market changed from what it has been for actually months, almost since last November in some form, to the more historical relationship-trading opposite of each other.

So if this is the new correlation as the USD/JPY carry trade is now fully unwound, then the charts below look good for the market...

This is a 1 min chart of the Yen, now the market moves with the Yen instead of against it as it has been for months.

The $USD is far more important, THIS is the historical correlation, risk assets move opposite the $USD so we know all new divergences start on the shortest timeframes and we have the $USDX above on a 1 min chart with a very negative divergence, that suggests the $USD falls.

With the Historical correlation between the $USD and market back over the last few days and certainly today, this should be nothing but helpful for a market reversal to the upside, as the $USD falls, the market moves up as it has been historically.

It has been since November that the opposite was true and over the last month to a higher and higher degree to intraday jiggles, now it has flipped, I assume because the USD/JPY, the last of the carry trades, is now unwound.

Overall the unwinding of the carry trade is a market negative event, but in the short term (like perhaps a week or a few. kind of the upside move we expected), I think it will support the market.

This is the new mechanism in the market, the charts are reacting well to it, I'll show you those next. Credit is seeing positive divergences, the averages are and the Index Futures.

Those are coming next.