Aussie/yen cross: Is it the canary in the coal mine?

The bottom line is the Aussie/yen cross corresponds very well with risk appetite (or lack thereof) and at present it may be cause for concern. 

 

 

7-Jul

8-Sep

10-Apr

11-Apr

12-Mar

12-Dec

Market

 

 

 

 

 

 

Aussie/Yen cross

107.5

89.75

87.2

88.5

87.4

88.3

S&Ps (cash)

1525

1260

1220

1365

1410

1425

Nasdaq

2700

2275

2530

2870

3090

3000

Crude Oil (WTI)

77.2

119

87

114

110

87.5

Silver

13.6

13.75

18.25

49.85

37.1

32.5

VIX (cash)

17

23

16.7

14.75

14.5

16.7

Dollar Index

79.85

78.25

80.15

73

79.1

79.55

Euro

138.75

148.5

137

149.25

132.95

132

Aussie/USD

88.7

84.6

92.85

109.2

107.25

105

Yen/USD

81.75

91.7

99.3

117.45

118.8

119.25

 

Drawdown following breach of 87.50

     

Aussie/Yen cross

 

56.5

72.5

74.1

76.5

 

S&Ps (cash)

 

670

1025

1125

1275

???

Nasdaq

 

1295

2100

2340

2750

???

Crude Oil (WTI)

 

38

67

77

77

???

Silver

 

8.75

17

26.25

26.5

???

VIX (cash)

 

85

41

43

26.7

???

Dollar Index

 

89.7

88.8

80.4

84.25

???

Euro

 

125.5

118.75

131.4

121.5

???

Aussie/USD

 

59.75

82.03

93.02

96.15

???

Yen/USD

 

115

121.1

132.65

129.7

???

 

 

 

 

 

 

 

Peak to Trough

 

 

 

 

 

 

Aussie/Yen cross

 

-37.05%

-16.86%

-16.27%

-12.47%

???

 

The world changed after the events of 2007-2008. Risk markets, on average, do poorly in the months following the Aussie/yen cross trading above 87.50.   

Is it different this time?

Don’t bet on it. Central Banks are meddling with far greater frequency in the post Lehman Brothers/AIG/Fannie/Freddie world, but eventually markets have a way of finding the pain.

Draw your own conclusions, but forewarned is forearmed. The VIX, Dollar Index, and yen all tend to have an inverse relationship with risk market performance, and volatility in general tends to go up a whole lot faster than it comes in. 

Consider the Aussie/yen cross a street light. The light either just moved from green to yellow or perhaps it moved from yellow to red. It can be dangerous to run red lights.

 

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