Credit fears will persist, although there will still be value on selling into Swiss franc rallies, especially with reduced confidence in the Swiss economy.

There has been a significant de-coupling of markets over the past few days. Equity markets have been generally firmer with solid gains in Europe on Monday while Asian markets were also firm on Tuesday.

In contrast, credit fears have remained at elevated levels with the European iTraxx crossover index rising to all-time highs at around 588 basis points which indicates elevated stress levels

Over the past few weeks, carry trades have generally been correlated with the performance of equity markets which have, in turn followed credit markets. The divergence now evident indicates the need for greater caution with equity and credit markets not moving as tightly in tandem. Investors are also looking at individual economies more closely.

The Swiss franc and yen have strengthened on Tuesday as the credit fears have tightened with the franc pushing back to near 1.09 against the dollar, although there has not been strong buying pressure for the week as a whole.