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400+ Point Dow Jones Loss Sends US Dollar, Japanese Yen Higher - Watch for Further Losses

Wednesday, 19 November 2008 21:03:34 GMT  |  David Rodriguez, Quantitative Analyst

The Dow Jones Industrials Average finished 427 points lower on the trading day, sending both the US Dollar and the Japanese Yen substantially higher through the close. In fact, the Dow closed below a key 10-year rising trendline, and a continued breakdown would suggest that the decade-long Dow uptrend is over. Further Dow Jones losses would almost certainly force further gains in the Dollar and Yen—especially as the correlation between the Dow Jones and the Japanese Yen remains at its strongest levels in at least 20 years. 

A short-term chart shows that the Dow is now at the very bottom of its recent descending wedge, and a sustained break lower eyes little in the way of significant support until 7,400.

US Dow Jones Industrials Average, 60-Minute Chart

In fact, the chart below shows that the Dow Jones currently trades below its 10-year trend channel. The index previously pierced said trendline in the past several weeks, but continued weekly closes above the line suggested that the longer-term uptrend remained intact. Yet we see that the Dow currently trades in “make or break” territory. Unless the DJIA is able to force a noteworthy rally off of recent lows, we may be in for more pronounced losses through upcoming trade.  It will be important to watch short-term price action in the Dow Jones—especially as it relates to longer-term trends and risk sentiment. 

US Dow Jones Industrials Average, 60-Minute Chart

Written by David Rodríguez, Quantitative Analyst for DailyFX.com

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