It's in the Reaction

We have looked at the U.S. Dollar/Japanese Yen currency cross, which was at the epicenter of the late-July intervention by both the Treasury and the Japanese Ministry of Finance ("MoF"). But for the sake of continuity, the first daily chart, below, is an ETF for the Japanese Yen, the FXY. You can clearly see the late-July intervention designed by both Scott Bessent and the MoF to support the Yen from its free-fall. 

While that intervention initially worked, as they tend to do, the pertinent issue is how sustainable that type of government action is when market forces have been making a fairly bold statement against the Yen for quite some time now. 

With this in mind, note the FXY rejecting the 200-day moving average (yellow line) in recent sessions, especially today. In the context of a strong downtrend, we often expect convincing, spirited, and in this case even seemingly government-mandated rallies up to the declining 200-day moving average.

But they often fail and lead to a resumption of the downtrend in due time, as we may very well be seeing now with the Yen's FXY ETF. 

On that note, last Friday's ice-cold jobs report saw the odds of a September FOMC rate hike move lower (they currently stand at about 50/50 of a hike versus The Fed standing pat). Bond bulls took several victory laps off the weak jobs number.

However, Treasuries failed to reflect this ebullience. On the second daily chart, below, TLT is threatening to break to new lows with rates on the 10-Year Note back up to around 4.7%. 

Here, again, the reaction to recent news is not quite what many expected. Both the Yen and Treasuries are now in serious danger of undermining both government intervention and a clear government for The Fed to not raise rates anytime soon.

Alternatively, there is a nightmare scenario where The Fed does not raise rates, especially with midterms looming, but the long end of the curve spike anyway. This scenario would magnify just how far behind The Fed is in terms of needing to raise rates as inflation surges--Just look at copper of late, on top of the resilience in oil products.