Foreign exchange expert Kathy Lien says we can get a clue about where the market's going next by looking at just one currency pair: the dollar-yen.
Lien, managing director of FX strategy with BK Asset Management, says that judging by the Japanese yen, the odds of U.S. stocks bouncing back after four losing sessions are slim.
"Right now, I'm quite worried about the lower highs and lower lows that we're seeing in dollar/yen," she said. "Until we get back above 120, I think that this signals that we could possibly have further risk aversion and downside in U.S. equities."
The yen traded as low as 118.32 in early-morning trading on Thursday before moving a bit higher.
The dollar has recently fallen a bit against the Japanese currency, as the broader greenback rally has cooled. Generally, the dollar has risen against the yen in "risk-on" times when traders have been feeling optimistic, and fallen as traders become more cautious. And with the dollar showing little strength against the yen on Thursday, Lien anticipated that the cautious maneuvering will continue.
She said this is confirmed by what she's seeing across the currency spectrum.
"Pretty much, we have currencies down across the board. So I think we do have a little bit of risk-aversion that is percolating in the markets," Lien said Thursday. "It hasn't quite hit equities yet—at least not today. But I think that we could see some of the support levels in stocks being broken."
Still, others remain skeptical of using currencies to forecast stocks.
"I think that the relationships that we've grown accustomed to over the last six months have started to break down here a little bit, and that definitely goes to the currency markets," said Andrew Burkly, head of portfolio strategy with Oppenheimer.
Nonetheless, Burkly predicts that the dollar will soon resume its rally—alongside American stocks.
