Three 'Currency' Charts

With stocks holding near all-time highs, exhibiting similar fear-and-greed driven ebbs and flows (more flow than ebb for now), we thought these three charts would provide some interesting analogs. As Citi's Tom Fitzpatrick notes, the current charts for Gold, The USD Index, and USDJPY have some intriguing similarities to (respectively) 2006/7, 1996/7, and 2000/1. If history rhymes, it appears it is time to buy Gold, buy the USD, and prepare for a hiatus in JPY's collapse.




  • Gold in USD terms has bottomed out (Slightly higher levels this time because USDCNY is lower this time than the prior 2 occasions in Dec 2011 and May 2012) and rallied $270 in just over 3 months (On average) thereafter.
  • With the exception of the 2008 market meltdown Gold has never in the last decade managed to trade more than 1 to 3% below the 55 week moving average.
  • This would suggest that $1,585-$1,615 is the buy zone
  • In addition the present pattern looks very much like that seen in 2006


  • By any normal measure of yields, yield spreads, yield curves, Nikkei etc this move in USDJPY looks “too far too fast”
  • In fact the present move reminds us a lot of a similar move in history.
  • Then the move began in earnest on Sept 07, 2000 compared to that from Sept 13, 2012.
  • That move (low to high) was just over 22 big figures compared to the present just under 20 big figs so far. This time around the percentage move is greater because of the lower starting point.
  • More importantly, when looked at closely we see that the peak of rally off the Sept 2000 low took place early on the first trading day of the new month/quarter/Japanese financial year. Did it end the trend? No it did not. However we saw a significant correction of nearly 7% in the following 2 months (And ultimately close to 9% by September that year before the uptrend resumed into 2002). Interestingly yet again in 2002 from the opening day in April USDJPY fell very sharply.
  • All this suggests that

    – USDJPY may have one last push higher in the week ahead

    – Although the trend in USDJPY looks likely to continue this impulsive move could be subject to a sharp correction before higher again

    History and the overstretched nature of this move suggests that the opening days of April may be the time that this rally becomes most susceptible to a sharp correction (Possibly even as low as 90 or below in the following few months)

USD Index

  • We continue to believe that the present set up on the USD Index is very similar to early 1997 (16 years ago) and early 1981 (16 years prior to that)
  • This suggests to us that a move towards at least 89.00-89.60 and possibly even as high as 95-97 could be seen this year.
  • The bullish outside month seen last month has added further weight to this view.
  • Interestingly the peaks in 1981 and then in 1997 were both posted in August. In 1981 that was about 27% above the 1980 close while in 1997 (which we favour more as a comparison) it was around 15.5%. A move like 1997 would suggest levels around 92+
  • We continue to follow a similar path which would suggest a move towards 92+ by Aug-Oct this year.
  • It is worth noting that both the 1981 and 1997 periods followed housing/credit/banking crises. In both instances the Fed eased rates and kept them too low for too long….in the 70’s period leading to a stagflationary environment.
  • In addition the 1997 period followed the falling apart of the existing financial architecture in Europe (ERM) to be replaced by the EURO (Fixed exchange rate pretending to be a single currency) which is even more flawed than its predecessor.
  • IF, as we expect, we get a move towards 92 on the USD Index this year we would expect EURUSD to at least equal if not exceed that percentage change. The 92 level is about 11.25% from the present USD-Index level. A drop from here of 11.25% in EURUSD would suggest at least a move towards 1.1500 in EURUSD

Source: Citi