Carry trades rebounded strongly today thanks to the rally in the Dow. However before getting too excited, a closer look at charts of the Japanese Yen crosses reveal currency pairs that still remain below their late August highs.
Also these pairs are within a wide range which suggests that even though a further recovery is likely, the gains will be limited. USD/JPY for example rebounded to 117.13 after hitting a low of 111.60 on August 17. Therefore any rebound in USD/JPY should taper off before it reaches that same level.
Written by Kathy Lien, Chief Currency Strategist of DailyFX.com