Fear gripped the markets in August as the blow up in sub-prime spread to the overall credit markets and created a seizure-like conditions with investors fleeing to safety at any cost. The move a created  massive unwind In the carry trade and the yen strengthened massively against all the majors. However, the dollar was a beneficiary as well. Carry trade liquidation sent the high yielders tumbling and investors parked their newly unwound positions in the greenback. As calm returned to the markets the spike bottoms made in the middle of the month evened out and the net effect was that the dollar ended up pretty much where it started the month. Those traders only looking at month end data would have thought August to have been an uneventful month.  Whether turbulence will continue into September depends to large extent on any further fallout in the credit markets. If the worst is indeed behind us volatility should die down but the impact of August ‘s price action will likely last for quite a while.


Boris Schlossberg
Senior Strategist


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