The Dow Jones Industrials Average shed all of its earlier gains, with a late afternoon tumble leading to sharp rallies in the highly risk-sensitive US Dollar and Japanese Yen. The Dow now trades near significant trendline support dating back to 1997, and a break lower would signal that a move towards 7,500 is likely. Such a move would almost certainly support the Japanese Yen, as the correlation between the Dow and Yen is at its strongest level in at least 20 years.
Earlier today we showed that the Dow Jones Industrials traded almost squarely at significant 10-year support. An examination of shorter-term price action likewise shows that the index trades very close to the bottom of its recent trading range, and a break below 8,000 leaves little in the way of noteworthy support until 7,500. Forex traders should continue to keep a close eye on the Dow, as a break lower could spell further US Dollar and Japanese Yen strength.