Daily Trading Forecast

Renewed Interest in "Carry Trades"

Thu, May 15 2008, 10:10 GMT
by Swiss e Trade Strategy Team

Swiss e Trade AG


We have seen renewed interest from our clients in establishing "Carry Trade" positions, which explains why we have also seen weakness in the Japanese yen and the Swiss franc. One problem with this viewpoint is the fact that Sterling has remained very weak overall and normally this scenario has been supportive for Sterling in the past.

Another mystery to many analysts is the strength in the Euro against the other major currencies, especially the U.S. dollar. The standard explaination for the Euro's performance is the growing conviction that the ECB will not reduce interest rates anytime soon. But there is also the opinion that the Fed is finished lowering rates and their next move will be to raise rates which would support the dollar. Go figure.

Intraday Market Outlook for Day Traders

EUR / USD
The EUR / USD today looks like it will be range-bound between support at 1.5395 and resistance which we see at 1.5570 and is currently trading at 1.5515. Recently, the Euro has been supported by its interest rate advantage over the dollar and the perception that the ECB now will not reduce rates any time soon. We have no forecast for today.

GBP / USD
The GBP / USD is currently trading at 1.9476, not far from its long-term support line at 1.9360. The discouraging economic outlook for Great Britain has weakened the pound recently and we see no reason for this view to change. We do not expect the pound to break below its aforementioned support in today's trading due to the renewed interest we’ve seen with clients establishing carry trade positions. No forecast for today.

USD / CHF
The renewed interest in carry trades is hurting currencies with low interest rates like the Swiss franc, which is currently trading at 1.0540. In today’s trading, we see support at 1.0480 and resistance at 1.0600. If interest in the carry trades continues, the USD / CHF could test this resistance level. No forecast for today.

USD / JPY
Like the Swiss franc and also due to the interest in the carry trades, the USD / JPY is trading higher, at 105.03. Also like the Swiss franc, the USD / JPY may test its strong resistance level at 105.60 – 105.70, but we think resistance will hold. No forecast for today.

Published on  Thu, May 15 2008, 10:12 GMT

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Swiss e Trade AG shall not be responsible for any loss arising from any investment based on any recommendation, forecast or other information herein contained. The contents of this publication should not be construed as an express or implied promise, guarantee or implication by Swiss e Trade that clients will profit from the strategies herein or that losses in connection therewith can or will be limited. Trades in accordance with the recommendations in an analysis, especially leveraged investments such as foreign exchange trading and investment in derivatives, can be very speculative and may result in losses as well as profits, in particular if the conditions mentioned in the analysis do not occur as anticipated.

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