Tuesday saw the U.S. Federal Reserve Bank drop the Fed Funds rate by 75 basis points. The Japanese yen vs. U.S. dollar inter-bank exchange rate (JPY/USD) fell 0.49% to close at 0.9392¢ yesterday. According to the MIM, when the yen depreciates relative to the U.S. dollar on the same day in which the Fed Funds rate is dropped by at least 50 basis points, the yen typically strengthens relative to the dollar across the following four trading days.
Q: What happens when the JPY/USD declines on a day in which the Fed Funds rate is dropped by 50 or more basis points?
A: According to the 10 previous occurrences of this event, EventEdge indicates that JPY/USD has shown a very strong bullish edge that peaks four trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the most recent occurrence of the event (Tuesday, Jan. 22, 2008) is Monday, Jan. 28, 2008. JPY/USD rallies in 100% of the cases (10 of 10) by an average of 1.5% relative to the close on the event date. The overall return of the 10 cases is 1.5%, which, based on the close of JPY/USD on the event date (0.9400), provides a target price of 0.9500.
If you would like to see more details of this historical edge, go to www.markethistory.com
Scott Murani covers European energy and commodity markets from London.
