Euro is the new Yen

Euro just shot up over China's devaluation of Yuan from 1.098 against Dollar on Tuesday to 1.12 by last night. While Dollar was up against most currencies and commodities, Euro's move might baffle investors.

Why Euro traded higher?

• While there are many factors, such as drop in yields in US, Dollar weakness especially on second day of the trade, Euro in oversold territory, Yuan depreciation would push FED hike further into the future, Greek deal and so on.

One explanation is standing out. Euro is acting more like Yen as we know it.

ECB's record monetary policy expansion pushed yields to such low that Euro has been used as a funding currency. And devaluation in Yuan and return of heavy risk off sentiment led to heavy unwinding of the carry trades.

So Euro is the new safe haven currency like Yen and Franc.

This theory even explains today's move. As risk appetite improved, pushing treasuries lower and equities higher, Euro lost its shine along with Yen.

Over the coming days and weeks, Euro's move will test this theory if it holds or not.

Does it mean it will trade just like Yen?

• Probably not. Euro is the currency of 19 nations with very different fundamentals and economic situation unlike Yen. So part of the Euro's move whereas might be contributed to the carry trades, other factors might still have larger role to play given its role in global reserve.

Euro is currently trading at 1.111 against Dollar.