There May Be "Some" Hope for the Yen Based Carry Trades

Overnight, between the PBoC (Chinese Central Bank) saying, "Anyone anticipating additional stimulus would be disappointed" and the head of the Bank of Japan, Kuroda saying, "No need for additional stimulus" the pair of comments were enough to break the Yen carry trades' collective backs with USD/JPY breaking the psychological level of $103, essentially a mass run on stops.

The shellacking in the carry pairs, especially USD/JPY as that's the one I'm most focussed on right now, didn't translate in to the dump that would normally occur in ES/SPX futures...

 USD/JPY in red/green bars vs ES in purple, note the overnight action in the white box, ES didn't respond as badly, not nearly as badly and this with the USD/JPY hitting the stops at $103.

 I suspect part of the reason if not the entire reason is this little reversal process or "W" shaped base we've been looking for since Friday.

I've said it a few times before because it is my experience, "Once Wall Street invests in a cycle, no matter how small, they are going to see it through", that should tell you that these aren't just oversold bounces or overbought pullbacks, there's a purpose to everything they do whether we understand it at the time or not.

I happen to think this is VERY VIX related, but what's important thus far is what we can observe and thus far all of the averages at least confirmed the open or better.

Here's the 3 min SPY leading positive divegrence, it's the only average to halt at 3 min with no 5 min positive, the other averages have 5 min positives, thus the reason the call positions are open in the IWM and Q's rather than SPY.

You can also see the "W" pattern we were anticipating forming up.

This is the 3C chart (5 min) of USD/JPY, note the positive divegrence, I suspect we get at least a bounce and > $103 would be my guess, how long that takes is another story, but it looks like work is already underway.

This is the same USD/JPY, just 1 min with a positive divegrence. FX pairs just like equities also need a reversal process which seems to be starting as downside has halted and giving way to a more lateral trend.

 The single currency Yen Futures on a 5 min chart are in leading negative position...

$USDX is not, it's in line, but the Yen moving would be enough to move the pair (falling Yen=rising USD/JPY).

This is the 1 min $USDX with a positive in place, when this moves up, it should lift the carry pair.

And the 1 min Yen, when this moves down as an intraday negative divegrence is starting, the pair should lift.

Although the algos didn't take ES futures down like the carry pairs the futures usually follow (I think because they already started a cycle in the equity markets, a micro one, but one nonetheless) you can be pretty sure any upside in the carry pairs will lift the Index futures, that's the point of this post.