Since the 27th July the lucrative yen carry trades have fallen off the edge of a cliff to the tune of 20%. The reasons for this have been the usual variety of bizarre and fanciful!These have included increased volatility in all markets, hedge funds finding themselves short of cash as interbank liquidity suddenly dries up, and last but by no means least, the Japanese housewife!!Apparently this docile form of womenhood has been trading forex in such large numbers that they can apparently move markets on their own – utter rubbish in my view!!
All the charts of the yen carry trades, that is the New Zealand dollar, the UK pound and the Euro, all exhibit the same trends in the charts. All have had significant falls in the last two weeks, but are now showing signs of a bounce back. Whilst I would not advocate my own style of trading to the current oppportunities ( long term trades ) I do see an opportuinity for short term gains, provided you open positions with wide stops, should volatility return to these markets. At the end of the day, the differential rates are still there, so untill these rates change the carry trade is alive and well. You will just have to be more careful in planning your entry and exit points.
I currently have no carry trades open myself, but will start to look at them again in the next few weeks, to see if there are any long term opportuities identified from the weekly or monthly charts – for me it is too early to say ( you see I have a trading plan and strategy ) but for you, there may be short term opportunities, if this is the way you trade. The fundmanetals have not changed since July, and even if the FED do start to cut rates next month, the profit opportunities will remain for some time to come.