In case you were asleep, US and global capital markets last week experienced unprecedented turmoil, followed by an unprecedented rebound. US stock market indices, for example, declined nearly 10% over the course of two days as it was revealed that three financial institutions (AIG, Merril Lynch, Lehman Brothers) were in deep trouble. Granted, the three scenarios managed to resolve themselves (government purchase, shotgun merger, bankruptcy), but the unthinkable had transpired. The following day, the markets promptly recouped their losses, as the earliest details of a sprawling US government bailout were announced. However, investors remain wary as they attempt to sort out the details. According to one piece of analysis, the forex implications are as follows:

First, the carry trade has officially fallen out of favor. Look for funding currencies (Japanese yen, Swiss Franc) to benefit and recipient currencies (Australia, New Zealand, etc.) to continue suffering. Next, while the US remains a safe haven because of perceived stability/liquidity, the monetary situation could still ignite a sharp decline in the Dollar, as the Federal Reserve performs an about-face and cuts interest rates in order to avert a complete financial meltdown. Instead, economies that have performed relatively better (less poor, to be more accurate) than the US, will probably witness a rise in their currencies. Think Canada and perhaps, the EU.

Read More: Lehman Fails And AIG Is On The Verge – What Is The Currency Impact?