Investors Flee Stock Markets And Carry Traders Pack Up

Yesterday was a relative quiet day as Japan and the North American market took holiday. No important news was leading the market direction and the majors took the chance rebounding against the US dollar. Yet you may have noticed that the volatility was evoked in the stock markets – and it may soon spread into the FX market. It will be bad news for carry-trade traders who have been shorting the euro and yen in recent months. The strategy would have quite profitable as you can imagine in those months, and it wouldn’t surprise me if they are now starting to wrap up their trades taking home their profits.

The euro/dollar rose back beyond the short term trendline as expected and for trend traders it may mean the reverse has just started. An alligator has been flat for a while and the RSI is almost as high as 50 now. If the euro can climb beyond last week’s high of 1.2790, the 1.30 level will be the next technical target.


The dollar/yen also fell under this background following the trend of US stocks. The expectation of the BOJ’s new stimulus may not be realized in the near future. The yen may strengthen for a while yet and the USD/JPY may decline to the 105 level.


The global stock markets remained weak on Monday and the VIX surged to a 22-month high, showing an increasing investor concern the possible end of the 5 year bullish trend. The Dow edged down by 1.35% to 16321, while the NASDAQ Composite Index slumped by 1.46% to 4213. The S&P 500 declined 1.65% to 1874. We can see the index has broken the trend line and the August low near 1900. The next target may be the 1800 integer level.


As to other the markets, the S&P/ASX 200 lost 0.63% to 5155. The Shanghai Composite also fell by 0.36% to 2366. In the European stock markets, the UK FTSE 100 was up 0.41%, the German DAX gained 0.27% and the French CAC 40 Index rose by 0.12%.

On the data front, the Australian NAB Business Confidence will be released at 11:30 AEST. The UK inflation data will be out at 19:30 AEST and the German ZEW Economic Sentiment will follow half an hour later.