Carry Trade Continues to Suffer

The carry trade is still unwinding, if not coming to an outright end; the result is that the Yen is belatedly joining the ranks of the rest of the world's major currencies, which have risen tremendously against the Dollar. The reason for the sudden weakness in the carry trade (i.e. Yen strength) is volatility. The US "credit crunch" began to significantly effect US bond and stock market valuations almost four months ago, but the full impact still hasn't been felt. The latest development concerns the quarterly earnings release for Freddie Mac, an American company whose main purpose is to provide liquidity to the US mortgage market, through the buying and selling of mortgage-backed securities. However, Freddie Mac is now bleeding money, and while it is unofficially guaranteed by the federal government, investors are seriously questioning its ability to prop up the ailing market for housing CDOs. And this uncertainty is causing investors to eschew risk, in short, to abandon the carry trade in favor of more traditional forex strategies.

EUR/CHF 1h just closed below the 74.2% fib (1.6330) While 4h chart haven't confirm it yet but probably will. I'm looking at 1.6176 as the target if ever bear momentum increases. Though 1h and 4h chart now is at oversold level, so its hard to tell.

If anyone out there hedging long on EUR/USD against USD/CHF. You may consider cut some losses and hold the remaining, or directly short the EUR/CHF pair if you think it will fall using technical analysis.