Technical Trading Tips and Techniques by Virtually across the board, currency carry trades have unwound drastically, shaking out even the most determined yield-seekers at an almost unprecedented pace. The big question now is how much longer the freefall will last. If a bottom or near-bottom has been reached in the yen crosses, forex carry traders could soon potentially be looking at an opportunity to begin testing the waters (with low commitment) for a possible longer-term interest play. This could be the case even as central banks start easing interest rates. Now is almost definitely not the time to commit fully to establishing a new carry trade portfolio. But the fact that carry traded pairs are at or near historical lows lends to the outlook that there may be significant potential room for upside in the foreseeable future. At the same time, great caution should be exercised now, especially with the recent massive volatility in the markets. So any potential signal to enter into a carry trade at the present time should be considered extremely carefully.
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2 Responses to “Carry Trade Shakeout - Opportunity?”
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Hi James,
Quite right, now isn’t the time.
The RBA, RBNZ, ECB and the BOE are in the beginning of an easing cycle. I don’t think carry trade should be seriously considered until the cycle has been completed and that they are looking at increasing rates again (and providing the BoJ aren’t looking at increasing their rates at that time)
Best,
Christian
Hi Christian,
Thanks for your comment! Yes, absolutely, as I mentioned in my post, central banks will be easing rates. Therefore, much caution should be exercised. At the same time, though, differentials should still be high, at least for the foreseeable future, and prices are extremely overextended at this time. While now may not be the best time and place to enter, there could possibly be some opportunity a bit down the road, especially if and when these carry traded pairs have already solidly hammered out clear bottoms. Thanks for your insight, Christian!
- James