$USD/JPY Engine

One of the questions I've had regarding any kind of bounce is, "What's going to be the engine?" SPY Arbitrage assets have been scattered and not looking like a probable driver and the Yen has maintained strength over the past week as more carry trades are closed, last night for the first time I showed the first hint of a little weakness in the Yen and some strength in the $USD which has an effect on a number of commodities as well.

Here are the contenders for carry crosses...

 First the $AUD which seems to have been the victim of a massive carry unwind the last several days, going from highs of the week to lows in a couple of days; it has a slight positive divergence on this 15 min chart, but doesn't have enough lateral time put in in my view to be an effective carry cross.

 The Euro has shown some recent strength, but that hasn't done much and it's in a consolidation right now.

The $USD has always been the main contender and it is showing a strong 15 min leading positive divergence, it still needs JPY weakness and that is what has been missing until yesterday when we saw the first sign of it, but 1 sign does not make a trend, however it can start one.

Last night I pointed out this negative 15 min 3C divergence as the Yen was making a new high on thew week, signaling distribution in to the high and this morning we find the Yen has lost ground overnight, that's the weakness we need for the $USD/JPY carry cross to work as an engine to push the market.

Pre-Market I mentioned the USD/JPY in a range, it has broken out of the range since then.

I'm not convinced as you know of these very recent, very sharp positive divergences, they are unique in how fast they have formed, again, like someone knows something and found out very recently. Credit's "V" reversal which is the first "V" reversal I remember in a long time is another sign. We'll just have to see how these signals continue to develop.

Thinking like a "Crook", if it were me moving the chess pieces, I'd want to keep prices in the major averages subdued as long as possible before the 2 p.m. release (I'M GOING TO HAVE TO TURN ON CNBC FOR THE SECOND TIME IN A MONTH) and accumulate and build a stronger footprint in price to support any move.


***WARNING- Watch out for initial knee-jerk reactions, don't panic on them because this always happens with F_E_D events, however in my view I was looking forward to letting the few long positions gain on a bounce and then quickly flip to short in to strength in areas that have good tactical positioning set up, I would not trust this "bounce" should we get it like past bounces in that they take time to form a reversal process, I think if we do get a bounce on the minutes, it can and probably will fail unexpectedly and suddenly, the market has obviously changed to a much different character. I wouldn't trust the tried and true market behavior concepts on this one. For me this means don't get greedy with any longs and be ready to act and short strength.

If the minutes get a bad reaction, remember the intial reaction can change within a day or two, usually faster though.

Otherwise I plan on simply letting the core shorts do the work and wait for the next set up.