Carry Trade Unwinding Continues, More Losses in Store (page 2 of 2)

If stocks continue to collapse, carry trades will continue to fall. Meanwhile in the week ahead, there is a lot of data on the Japanese calendar including industrial production, the trade balance, household spending, labour cash earnings, and the jobless rate. The market has gone from pricing in a 64 per cent chance of an August rate hike to a 45 per cent chance.

Uptrend in commodity currencies comes to an end

The trend of multi-year highs in the commodity currencies has finally come to an end this week with the New Zealand, Australian and Canadian dollars suffering significant losses.

The biggest losers in the currency market today were also the NZD and AUD. As warned by central bank Governor Alan Bollard earlier this week, exporters are definitely beginning to feel the pain of a strong currency. Both imports and exports dropped significantly, turning the New Zealand trade surplus into a deficit.

Meanwhile there have been reports that model and momentum funds are aggressively selling the Aussie which means that they are no longer holding out the hope for a recovery in the high yielders and are instead either getting stopped out or initiating fresh short positions. Australia has retail sales next week which will be worth watching.

Canada on the other hand has raw material and industrial product prices along with GDP and IVEY PMI. USD/CAD has bottomed out and we expect the bottom to hold.

EUR/CHF sees biggest weekly drop in four months, EUR/USD weakens on dollar strength

Over the past two days, the Swiss franc has rallied significantly against the euro as a direct result of the currency's own safe haven status. The KoF report of leading indicators was stronger than expected, which has also helped, but the move in the currency pair began on Thursday.

In the week ahead, we have the UBS consumption indicator and PMI from Switzerland. Both are expected to remain strong, illustrating the overall health of the economy. The euro on the other hand has weakened for no other reason than dollar strength. There are a ton of PMI, unemployment and consumer spending reports due out next week, which could lead to some euro drive action.

Weak housing numbers weight on British pound

Like the euro, the British pound has sold off significantly today on the back of liquidation of high yielding assets as well as a broad dollar recovery.

House price growth continues to be soft which could be concerning going into next week's heavy economic calendar. We are expecting more housing market reports as well as money supply, consumer confidence, distributive trades, manufacturing and service sector PMI.

Overall the UK economy still remains healthy and the Bank of England could raise rates to six per cent by the end of the year. The global markets just need to stabilise before these factors come into play once again.