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Summary
In this session we'll cover a strategy favored by large banks and hedge funds but lesser known among retail traders. The carry trade in forex involves borrowing one currency at a low interest rate and simultaneously investing in a currency that yields a higher rate of return. In this presentation we'll explore this strategy, covering the following points:
- History of the carry trade: how the yen carry trade of 2004-2008 played out.
- Interest rate differentials: The rate that you either earn or pay out.
- The role of leverage: how leverage can dramatically amplify earnings from the carry trade.
- Carry trade entries: looking for trend in a potential carry trade pair.
- Fundamental factors: why carry trades do well in 'risk on' environments and poorly in times of 'risk off' sentiment.
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Editors’ Picks
EUR/USD trims gains, hovers around 1.1900 post-US data
EUR/USD trades slightly on the back foot around the 1.1900 region in a context dominated by the resurgence of some buying interest around the US Dollar on turnaround Tuesday. Looking at the US docket, Retail Sales disappointed expectations in December, while the ADP 4-Week Average came in at 6.5K.
GBP/USD comes under pressure near 1.3680
The better tone in the Greenback hurts the risk-linked complex on Tuesday, prompting GBP/USD to set aside two consecutive days of gains and trade slightly on the defensive below the 1.3700 mark. Investors, in the meantime, keep their attention on key UK data due later in the week.
Gold loses some traction, still above $5,000
Gold faces some selling pressure on Tuesday, surrendering part of its recent two-day advance although managing to keep the trade above the $5,000 mark per troy ounce. The daily pullback in the precious metal comes in response to the modest rebound in the US Dollar, while declining US Treasury yields across the curve seem to limit the downside.
XRP holds $1.40 amid ETF inflows and stable derivatives market
Ripple trades under pressure, with immediate support at $1.40 holding at the time of writing on Tuesday. A recovery attempt from last week’s sell-off to $1.12 stalled at $1.54 on Friday, leading to limited price action between the current support and the resistance.
Dollar drops and stocks rally: The week of reckoning for US economic data
Following a sizeable move lower in US technology Stocks last week, we have witnessed a meaningful recovery unfold. The USD Index is in a concerning position; the monthly price continues to hold the south channel support.
Here is what you need to know on Tuesday, February 10:
The USD stays resilient against its rivals early Tuesday after suffering large losses on Monday. The US economic calendar will feature Export Price Index, Import Price Index and Retail Sales data for December. Additionally, several Fed policymakers will be delivering speeches.