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Economic data released so far this week from the U.S. has been horrible.

If we look at today’s data, it was all bad news.

We saw retail sales fall by a record 8.7%.

The Federal Reserve’s Beige Book, a regional snapshot of the nation’s economy, showed a sharp and abrupt contraction in April due to the coronavirus.

And the Empire State Manufacturing Survey for April plunged to a record low -78.2, more than doubling the “bad” number that was expected (-35).

U.S. factory output dove the most since 1946!

The U.S. now has 633,267 cases of the coronavirus, the most in the world. Deaths in the U.S. have risen to 28,278, also the most in the world.

The coronavirus pandemic is hitting the U.S. economy harder than expected.

Recently, the market had “looked past” negative economic data releases. After all, it’s an “engineered” shutdown and does not reflect the “fundamentals” of the underlying economy, which “remain strong” so any negative data that comes out is “irrelevant“.

But now (finally?), it looks like Wall Street is finally waking up to reality as the economic data becomes worse than feared.

I have a currency trade to bet on the U.S. stock market falling.

Short AUD/JPY.

Here’s why…


The chart above compares AUD/JPY and VIX.

The CBOE Volatility Index, or VIX, is the most recognized tool to trade financial market volatility. It measures 30-day expected volatility of the U.S. stock market based on the S&P 500 options.

Also known as the “Fear Gauge” or “Fear Index“, the VIX provides a measure of market risk and traders’ sentiments.

As you can see from the chart, VIX is negatively correlated with AUD/JPY.

When fear rises, AUD/JPY goes down.

When fear subsides, AUD/JPY goes up.

With Wall Start starting to get scared, it looks like VIX is starting to turn back up, which is AUD/JPY bearish. 🤔

Let’s compare AUD/JPY with the S&P 500 index.

AUDJPY vs. S&P 500

The S&P 500 is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States.

The index is followed by investors to determine the general trend of the U.S. stock market.

As you can see from the chart, the S&P 500 is positively correlated with AUD/JPY.

When the S&P 500 rises, AUD/JPY rises.

When the S&P 500 falls, AUD/JPY falls.

Notice how both have turned downward? 🤔

Let’s take a look at a daily chart of AUD/JPY.

AUD/JPY Daily Chart 04152020

Price spiked down to 60.00 and has been in a nice short-term uptrend since.

Until now.

It looks like maybe AUD/JPY has topped out.

It touched 69.00, a psychological resistance level, and its blue 50 SMA, a dynamic resistance level, but wasn’t able to hold above them.

I actually thought AUD/JPY would rise to fill the March 6 weekend gap (yellow box) but it wasn’t able to get up there.

Here’s my trade idea.

I’m going to short at market (67.90).

My stop loss (SL) will be 69.30. Or 140 pips.

This is right above the most recent swing high on April 14. And also above last week’s high.

I don’t have a set profit target (PT) yet but I am eyeing 64.50.

While I’d like to target something bigger, I’m hesitant at the moment because I don’t like that higher low that was made on April 2.

It gives me the hibbie jibbies that AUD/JPY may have possibly bottomed.

So if price falls, I will monitor price action if we get down to the 64.50ish area and see if I can continue to ride the downtrend further.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.