hi all ... I am a swing trader.

I took my profits in GBP/USD pair at 1.9810 on friday.

now I am entering EUR/GBP pair because I found more chance of making

money in that pair.

EUR/GBP is moving upward in coming days.

I decided to go short in that pair, and I will come back to GBP/USD pair when

it nearly breakthrough the resistance.

If you are a long term invester then you know that fundamentals rule this market, BOP, interest rates, and risk premium all move the market. Thus the carry trade gives a long term indication on where the currency will go.
So the question is not wheather or not carry is dead, but wheather or not it is King!

You are right. Carry is DEFINITELY not King. With the Dow tumbling close to 400 points yesterday, all we are seeing today is a relief rally.

Very true.

The carry trade is a very consistent trading strategy for big investment houses, but to keep it from overwhelming their returns, they actively hedge capital losses and trade on very low leverage.

For a regular trader who has a small amount of capital, they really can't trade the carry successfully unless they weave it into a dominate trading strategy and use the carry as a filter.

Too many times I receive questions on trading the carry, but people are just taking high yielding carry positions with no mind to capital losses. This is why I changed the carry report from a trade basket to an index - I want people to think about it critically as a reflection of trading conditions and how they should trade in the FX market rather than blindly taking a basket of currencies on the hopes of making big roles.

Because the big banks use this there must be something implicitly woven into the interest rate.

Basically do you have any other indicaters other than the interest rate that will summerized the health of a particular economy?

There is nothing more encompassing than interest rates because the market is the deepest source of knowledge and traders wouldn't blindly put their money on such expectations.

In DailyFX, we follow swap rates, government debt yields and overnight Libors as the best source of following the outlook for specific economies.

Economists and fundamental traders follow the day to day data, and that could give you a more broad view of the outlook (perhaps you see that the market is over or undercompensating for a certain factor), but the market quickly absorbs this data into rates.

Very important event for carry trade today (check out the full Bloomberg article). Seventeen of the world's largest banks agreed with regulators to trade their Credit Default Swap trades through a clearinghouse.

Clearing Corp. agreed to act as the central clearinghouse and they said they would guarantee the trades to counterparty risk. The risk that another bank could go bankrupt is the primary reason for liquidity to virtually vanish and the credit market to struggle. All risk trades has stumbled around this unfavorable situation.

However, with this huge market finally seeing some real regulation, liquidity will likely return and fears that a bank collapse can turn into a financial market collapse will be sharply reduced.

Keep your eyes on the carry trade pairs, junk bond yields and spreads between government and corporate debt.

Your right thanks for the insight. Balanced risk is the key to all investing. I addition a balance between fundamental analysis and technical analysis is crucial for producing gains in this market. After introspection I believe that the carry involves the most important number but it is not the only number. So a culmination of all the events, rates, economic indicators, and charts will lead to a profitable position.

ı think it will fall down nearly 106.20

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That's pretty close to current levels for USD/JPY, however a break below 104 would be needed to negate the bullishness of USD/JPY

The orange line is the 100-day SMA, the blue line is the 50-day SMA

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Here's a monthly trend line to check out. If this break is real and it sure looks like it with the crack of the 23.6% Fibo line and the trendline, then we could see more losses in equities, which could translate into more losses for Carry Trades.

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Though we have seen USDJPY breakout of a mature wedge formation, the carry trade has actually sagged over the past week. The break about the carry index's falling trendline proved to be false and now we see that the downward sloping channel is still marking greater capital losses than yield differential income.

At the same time, our DailyFX VIX has shown volatility jump from its dip below the key 10% level. The currency market's highest levels of volatility in a month were measured through yesterday. However, the gauge has settled somewhat today with the dollar back on pace - an interest note considering the greenback itself could be a carry funding currency itself, though interest rate expectations may be countering that.

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I had also mentioned this over in the main USDJPY thread, but it perhaps would be more appropriate here.

RBS's credit strategist suggested this morning that global credit and equity markets are looking at a full-blown crash over the coming three months. This is a very aggressive call with a very distinct timing.

Obviously, this has profound implications for the carry trade as it is one of the primary proxies for risk sentiment. Clearly, should lending grind to a halt for a second round, there is almost certainly going to be a severe response from traders who are already very cautious. On the other hand, central banks have been pretty active in providing solutions to curbing any future hits to liquidity and credit markets.

Any opinions on this?

While instability exists it is not that grave. All the Central Banks are in panic mode but that shows that they are serious about addressing the situation. Central banks have experienced bank panics before, Bernanke's work on intermediation and its collapse during the Great Depression could give you insight as to what he will do. To outline his work he recommends providing liquidity to the sector (sound familiar) to prevent bank runs. Luckily we have a group of very capable central bankers for this crisis Tichet, Bernanke, Roth, Shirakawa all tip top. Had Benjamin Strong not died in 1928 the Fed would have reacted very differently to the financial turmoil that preceded the Great Depression. While the RBS analyst gets paid a lot more than I do he's wrong and Central Banks will prevent a collapse at all costs. The Central Banks potentially will follow the ECB and provide liquidity in exchange for risky subprime assets. Uncertainty will persist for years to come potentially hurting the carry trade by making it too volatile to be profitable.

I agree with much of what you're saying. These men are put into their positions for a reason. The US happens to be lucky to have Bernanke in such market conditions because (as you suggested) he is perhaps one of the foremost scholars on the Great Depression.

What is also interesting about this analyst note is that his warnings could incite panic among the company's own clients. If there is an impending credit and equity market crunch, why would RBS clients keep their money in RBS?