|
I was taking a look at the carry trade index and noticed that it was taking on an interesting correlation to the dollar (the blue line is the carry trade and the orange is the dollar index).
Up until July, the correlation was strongly positive, then when risk started to rise, it reversed and went sharply negative. This is likely a reflection of the dollar's advance despite rising financial problems; but will the negative relationship hold? Probably not. the US is the epicenter for the current troubles; so we will need to see if the world's largest economy is suffering alone or things are truly worsening everywhere.
Regardless, the carry trade is being hammered; so its best to stay away from the high yielders for now. A retracement is a dangerous possibility, but trying to call a reversal is like trying to catch a falling knife.
__________________
John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com
|
