After valiantly defending the 121 level, moments ago what is perhaps the most important carry currency for the US stock market dipped below and is now trading at fresh lows not seen since May.
Among the factors cited for today's weakness, the primary one is China. Overnight DZ Bank said that "worrying" developments in China seem to be turning yen into favorite place to be as safe haven both globally and within Asia. It adds that "rising foreign purchases of short-term JPY debt would suggest that investors are currently viewing yen as safe haven."
Whatever the reason, the one pair that has been stable as a rock in recent weeks, and which provided a key support to the market, is now sliding. Where does it go next? According to Goldman's technical analyst Sheba Jafari there is a long way down at this point, all the way to just under 119 where the next support level is.
From Goldman:
The next level to focus on is 121.06 where the 100-dma and an ABC from the Jun. 5th high converge. A break below that point will further imply that the decline since June isn’t actually corrective at all but rather something more impulsive. If this is true then the next likely target should be down at ~118.96; a 1.618 extension from the June high. This level is also near to the 200-dma which is at 118.51 and rising.
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If accurate, it means US stocks will likewise take out the all important 200-DMA support level as well, from which point on the PBOC may just sit in a conference room with the BOJ, SNB, ECB and Fed and decide what the best course of action to stabilize stocks is next.
