This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

The Yen May Be the Best Indicator at Deciphering Yellen's Tone

NEW YORK ( TheStreet) -- As investors await Janet Yellen's comments at the Federal Reserve's annual symposium in Jackson Hole, Wyo., it could be currency fluctuations overseas that tell the most about the future direction of U.S. equities.

Investors are looking to a statement from Yellen, the Fed's chairwoman, for clues about whether the Fed will continue to keep interest rates low as the U.S. economy gradually improves.

>>Read More:Warren Buffett’s Top 10 Dividend Stocks

Analysts, however, tend to have a difficult time coming to a consensus on whether comments from the Fed lean more dovish or hawkish, unless specific language is used.

Investors may be better suited looking at movements in the U.S. dollar/Japanese yen currency pair following Yellen's comments to gauge the market's reaction.

The U.S. dollar/Japanese yen currency pair, represented by the CurrencyShares Japanese Yen Trust ETF (FXY) , has held a strong negative correlation with SPDR S&P 500 (SPY) during the past five years.

The yen is perceived as a safe-haven currency as it tends to be bid higher during times of economic uncertainty.

Moreover, many investors have difficulty interpreting the price swings in iPath S&P 500 VIX ST Futures ETN (VXX) because it is perceived as a flawed indicator of risk. And so the yen is often seen as a better gauge of global risk sentiment.

As seen in the chart below, periods of big declines in the yen usually set the tone for broader moves higher in U.S. equities.

The yen fell by more than 24% in the final months of 2012 and by more than 7% in 2013. More accommodating monetary policy on behalf of the Bank of Japan was part of the reason, and so was less investor anxiety.

As the yen declined, the Standard's & Poor's 500 Index rose by 13% in 2012 and 6% in 2013.

FXY Chart
FXY data by YCharts

>>Read More: Housing Is Heating Up; Does This Change the Fed’s Thinking?

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
FXY $81.21 0.00%
SPY $211.12 0.00%
AAPL $129.36 0.00%
FB $79.60 0.00%
GOOG $573.64 0.00%


DOW 18,203.37 -85.26 -0.47%
S&P 500 2,107.78 -9.61 -0.45%
NASDAQ 4,979.9010 -28.1950 -0.56%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs