While most currency pairs are "frozen" in time right now while they await the U.S. Fed's rate decision. However, one that is on the move is EUR/JPY. Stocks are rallying on the thought of another rate cut coming from the Fed tomorrow.
So the carry trades are enjoying a rise in conjunction with stocks today. It's the place to be right now since most pairs that are "paired" against the dollar won't move much until after the Fed's rate decision comes out.
The reason why that is...is because big "inter-banks" don't like to make any big plays so close before a Fed decision when they could do so after the news is out and they know the conclusion. After that, then they go back into the market and place their huge trades. That brings volume and movement back into dollar pairs.
However, until then...the "crosses" are the place to be. Crosses are those pairs that don't include the U.S. dollar.
Check out the EUR/JPY hourly chart below. (Click on the chart if you'd like to enlarge it). If stocks continue higher, EUR/JPY could break out of this triangular sideways pattern.
Watch the Dow and Nikkei today and tomorrow. See how they fare. If they hold up, then EUR/JPY could break to the upside and head higher in the short term.
Over the longer term, I still think stocks are breaking down and so the carry trades will head lower. However, in the short term, there are rallies even within down trends.
Sean Hyman
Editor/Trader
www.money-trader.com
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