In previous articles, I have written about the increasing strength of gold and bonds, hinting it may signal waning equity market sentiment. A crash may not be in the picture due to downside protection provided by the Federal Reserve, but on the daily charts, assets traditionally bid higher during times of fear are beginning to receive that bid.
As investors focus on U.S. earnings as opposed to government rhetoric, mixed results are causing equities to be less attractive. For instance, Caterpillar's earnings report, released Wednesday, was below expectations, sending a negative signal to global markets. The maker of industrial equipment is as a proxy for global growth. Its disappointing third-quarter results and outlook provided negative sentiment for the fourth quarter.
The chart below is of USD/JPY currency pair. An exchange-traded fund that tracks the Japanese currency is CurrencyShares Japanese Yen Trust .
The yen has been weak for most of 2013 due to promises of accommodative monetary policy by the Bank of Japan. That has allowed almost every currency pair to strengthen versus the Japanese currency.
Over the second half of the year, however, uncertainty over U.S. policy has allowed the yen to gain traction versus the U.S. dollar. That, alongside increasing investor anxiety at record highs for equity markets, has caused to the yen to make a tight consolidation versus the dollar.
If the USD/JPY breaks lower out of its range on the chart below, it will certainly lead to broad selling in global equity markets and stronger moves in sovereign bonds and gold.
Earnings season and continued U.S. policy debate should set the stage for either a bullish or bearish move out of the tight price consolidation.
At the time of publication the author had no position in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.