Albert Edwards at Societe Generale says the US dollar against the Japanese yen is the most important chart for investors right now.
In a note to clients on Monday, Edwards said that after last week’s decline against the dollar, the yen is threatening to break a 30-year uptrend against the dollar.
“We have long believed that investors ignore Japan at their peril. Time and time again, investors have missed major global market trends that have been catalyzed by Japan. We have felt for some time that a fragile Chinese economy could be pushed over the edge by a further yen devaluation — in many ways a replay of the Asian crisis of 1997. And just as the Chinese real economy data has taken a turn for the worse in August, the yen has slipped below a key 15-year support level against the dollar. This is probably the most important chart investors should focus on. The next phase of global currency wars may have begun.”
And acknowledging the technical aspect of the recent moves in the yen is not something that Edwards does lightly.
“Investors often tend to be wedded to particular investing strategies, be it bottom-up deep-value stock investing or following fundamental macro trends,” Edwards writes. “But the one thing that can guarantee a hostile reaction from a number of my faithful readers is when I pop the odd bit of technical analysis into a weekly. Many fundamentally based readers abhor technical analysis and are not slow in writing to me and letting me know that in some way I have let myself down with the introduction of such heresy onto these pages.”
And Edwards writes that the depreciating yen could be enough to throw Western economies into recession.
“I believe that profits growth is so anemic in the west that this monetary tightening via strengthening exchange rates could in itself be sufficient to send US and European profits into outright decline and subsequently their economies into recession (via a contraction in the investment spending),” Edwards writes. “That is why this FX technical break is so important.”
We last heard from Edwards when he wrote that the market was making a “hissing sound.”
According to Edwards, the yen isn’t making a hissing sound, it’s just breaking down. Technically speaking.