The credit crisis had its effect on many currencies, but the Australian Dollar suffered among the heaviest losses. Why? Because the bursting of the credit bubble lead to deleveraging everywhere. That in turn caused traders to unwind their carry trades. Carry trades describe the action of selling a low yield currency for buying a high yield currency.

Look at this disaster:

Bold traders may enter a position , since the Aussie $ still yields around 5% more than the US$ and could be considered cheap now.

The VIX, or Volatility index reached a historic high this week, spiking at 76.94 on Friday. It basically measures the expected volatility of the S&P 500 index. Low values imply smooth sailing while high values reflect fear or panic.

A look on the all time chart reveals that we are in unprecedented panic mode these days:

Even during the 9/11 selloff the vix only reached about 44, and now we are at 70! This means we are either close to a HUGE bear market rally, or the world ends around thursday next week.

Friday was a day of extreme volatility on the markets accompanied by high volume. Almost 3 billion shares were traded on Wall Street.

Especially remarkable was the opening panic mostly caused by margin calls and forced selling with very high volume. A quick and unexpected recovery followed. Selling resumed after this near 10% spike and the markets retested the panic low of the morning trading. In the evening we had almost a repeat of the morning spike, propelling the markets up 10% from its lows. The trading day ended with a pullback to end almost even.

Volatile high volume days like this are usually a good sign of reversal points. I am expecting a big bear market rally lasting at least 2 weeks.