Primary Reaction in Forex Markets

In forex markets, the primary reaction is in the JPY-crosses, like EUR/JPY, AUD/JPY, and GBP/JPY, commonly referred to as carry trades. As stock markets fall, the JPY tends to strengthen, sending USD/JPY, GBP/JPY, and the like down. When stock markets gain ground, USD/JPY and the JPY-crosses tend to move higher. Against other major currencies, the USD generally fared better on demand for USD from still frozen credit markets and on a flight to safety basis. If markets begin to stabilize and recover higher, it should be a positive for USD/JPY and the JPY-crosses, while the USD is likely to lose ground as fear and panic subside. If markets continue to slide, there is more downside in USD/JPY and the JPY-crosses and more upside for the USD against others.