Image Source: Pixabay

This will be an interesting week. After all, the S&P 500 is not often down for five consecutive weeks, so one has to think this might be the week the market attempts a rebound. From what I can tell, the last time it declined for at least five weeks in a row was in April and early May of 2022, and before that, such occurrences seemed rare.

The index also closed below its lower weekly Bollinger Band, which indicates that it is pretty oversold at these levels, suggesting a potential bounce.

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Can we expect a bounce? There’s a good chance, but whether it actually happens is another question. Technicals may not apply in an environment that seems to be experiencing a buyer’s strike.

More importantly, the Bank of Japan is likely to set the tone for future rate hikes, which could significantly impact the USD/JPY currency pair. While the BOJ is not expected to raise rates this week, It is expected that they will signal further hikes later this year. This will put the spread between U.S. Treasury rates and JGBs in focus, which will play a major role in determining where the USD/JPY cross moves.

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The USD/JPY pair is at a crucial level and will significantly impact what happens next. However, predicting its direction from here isn’t easy, as it’s facing a downtrend, horizontal resistance, and the 10-day exponential moving average. There is strong resistance around the 149 to 149.25 area, and if the BOJ signals more rate hikes—as they should—the general trend in the USD/JPY pair is likely to remain lower, meaning the yen strengthens.

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I think a stronger yen suggests the potential for lower stock prices, while a weaker USD/JPY cross means higher stock prices. That’s how the relationship has played out recently, and I don’t believe we’ve reached a point where it should change or stop working.

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Talking about liquidity and currency—have you ever seen those dumb charts on social media where they overlay “Global M2” with Bitcoin, making it look like Bitcoin is following “Global M2”? First, M2 values are typically updated only once a month, so there is no precise way to know where M2 is between the monthly updates.

Secondly, global M2 is measured in U.S. dollar terms, meaning the “Global M2” is basically just a dollar proxy. Essentially, you take Eurozone M2 and convert it from euro to dollars, Japan’s M2 to dollars, and so on, so if the dollar weakens against the euro, then the value of M2, when measured in dollars, will increase if M2 is denominated initially in euros, and vice versa.

So, at least since Q4 2023, the chart shows that Bitcoin, in this case, has traded about 20 days behind the DXY Index.

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That is likely because, perhaps more importantly, foreign investors were selling local currency to buy dollars to invest in Bitcoin, giving them the added advantage of gaining dollar strength and Bitcoin gains. That trade appears to be unraveling.

This becomes more apparent when you examine the relationship between the USD/JPY currency cross and Bitcoin, with the 20-day lag.

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This is true with the EUR/USD currency pair as well. But, instead, I used the USD/EUR pair for visual purposes.

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Again, it may appear in some ways to be an M2 play, but it is a dollar proxy. But then again, I could be completely wrong. You can decide for yourself; you know what I think, at least.

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