After a very strong rally yesterday, the Japanese Yen fell against the 16 most-traded currencies, with the Brazil, South Africa, Australia, and New Zealand currencies reaping the most benefits early in the day.

Overnight, the Bank of Japan made no new headlines by deciding to leave the key overnight lending rate at 0.5 percent. Similar to voting done by the Fed, only one member was opposed to the general consensus. However, as opposed to the decision made by the Fed, the Bank of Japan’s one opposing member was the sole advocate for a rate increase. Some fear this lack of change is a sign that Japan economy, the world’s second-largest, is still slowing down, but I believe that this lack of a unified vote signals that a change is coming. The housing crisis in the U.S. is feared to have spread overseas, affecting Japan. Toshihiko Fukui, Governor of the Bank of Japan was quoted as saying, “We can’t rule out the risk that the U.S. economy will deteriorate more than expected.”

Traders are wary that high yielding currencies are at risk due to the potential of the unwinding of the carry trade. Evening up and consolidation will be apparent as we go forward. If you haven’t already, I think it is time to begin long strategies in the Yen.

The Canadian Dollar climbed back a bit from yesterday’s fall aided by Canadian stocks

The U.S. Dollar benefited from a decline in Euro zone Industrial Production and softer Canadian readings, as well as a drop in the German currency, and a favorable Japanese GDP reading overnight, but couldn’t follow through on yesterday’s rally, still ending lower for the session. The Dollar has dropped following an indication from the UAE Central bank that they may drop the Dirham's link to the U.S. currency.

Phrase of the week: Carry Trade

A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates which can often be substantial, depending on the amount of leverage the investor chooses to use.

The Yen carry trade has been part of the reason that we have been witnessing such high volatility in these markets. It has affected everything from Metals, Oil, Grains and their corresponding stock. Remember this term as it could be a factor for a while.

This report may include information garnered from the following sources: CBOT, Bloomberg, Reuters, Interactive Investor, Cattle Network, Earth Times, AgReport, Aol Money, CNN Money, Market Watch, The Forex Market, Yahoo Finance, FXsol, Financial Times, iWon, Report on Business, Crain’s, Dow Jones Newswire, Nasdaq News, INO News, The Hightower Report

DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency and investors may lose all or more than their original investments, and the impact of such events is already factored into market prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Brewer Investment Group, LLC or its subsidiaries and affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed.