he S&P 500 and the Japanese Yen are in an odd state of affairs. They have been stuck in a rut for more than a week, and are currently languishing around the middle of their respective ranges. This is not a good situation for either party, and the only thing that will save one from the other is moderation.
Although the S&P 500 has been in a tight range for the past three weeks, the Dow Jones index has managed to smack out an eight-week high. With the market largely unmoved by the Fed’s rate hike, and the ISM service sector activity report in particular, there is a healthy amount of speculation on what to expect from the FOMC meeting in late July. The FOMC’s rate decision is also likely to amplify overall market volatility, as traders take note of the Federal Open Market Committee’s policy stance.
Despite the flurry of commentary about the yen’s stumbling economy, it is a relative laggard in the currency market. A combination of global economic growth, slowing inflation, and unfavorable monetary policies are putting a damper on the yen’s prospects. In the US, the Dollar is also not getting much love, as the yield on the 10-year Treasury note continues to creep lower. Even if the Fed does raise interest rates in July, it is still unclear whether the aforementioned measures will do much to improve the economy’s sluggish performance.
While the dollar’s biggest hurdle is a sluggish economy, it has managed to hold its own against the yen over the past year. That said, the US dollar has been a bit under the gun as the Fed has waited to lift the key rate until the end of the month, and the yen’s trade deficit is a real stumbling block. For example, the yen’s trade deficit jumped by a whopping $1.7 billion in July, which is more than a quarter of the dollar’s total deficit for the entire year.
Although the S&P 500 and the Japanese Yen have been stuck in a rut for the past few weeks, the pair has recently shown that it is indeed possible to make money in this market. The US Dollar’s best hope is to maintain a positive yen trade, as the latter is the biggest threat to its ailing economy. However, the most important thing is to avoid the risk of losing money in this volatile environment. One way to help minimize this risk is to stick to smaller sized positions, which will allow you to lock in gains should the currency deteriorate.
The S&P 500 and the Japanese yen have managed to abide by technical ranges, even as the financial system and the stock market churn. That has been particularly the case during the last few weeks, as the Fed has kept the US Dollar on an unwelcome short leash.