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Short Term EUR/USD Trades Prove Profitable For Wednesday's Leader

Now that we’re about two weeks into the currency trading portion of the contest, we’re starting to see a bit of a trend emerge in who makes it to the top 3: they are trading either EUR/USD or GBP/JPY and are taking on huge position sizes.

Yesterday we said that the trader that held the second and third largest portfolio balances on Tuesday was a danger to other contestants aiming to take the number 1 spot, and he still is. In fact, this contestant has now moved in to take the top 2 positions as of Wednesday’s close. Indeed, the largest currency portfolio balance in the contest amounts to a whopping $196,090.05, putting him almost $15,000 ahead of the next runner-up. One of his other portfolios is nothing to scoff at either, as the balance represents the second largest in the contest at $183,451.00.

Contestant number 1/2, like the majority of participants in the currency trading portion of the contest, clearly prefers EUR/USD. This isn’t entirely surprising, as it is one of the most frequently discussed pairs in the media when referencing US dollar price action, tends to move in line with fundamental news, and also trades well within technical support/resistance levels (rather than blowing right through them like the Japanese yen crosses). More specifically, this contestant closed a total of six trades on Wednesday as he flipped between long and short EUR/USD positions. The impressive part was that all of these trades were profitable and led him to net over $16,000 in one day alone. This is most likely because contestant number 1/2 is using conservative profit targets, closing his positions on gains of anything from 5 – 40 pips. However, since he is executing so many trades on a daily basis, this is proving to be a very worthwhile strategy.

It will be interesting to see how this contestant’s portfolios fare as of Thursday’s close, as we’ve seen significant volatility in the euro this morning. In fact, EUR/USD has jumped over 150 pips higher following hawkish commentary by European Central Bank (ECB) President Jean-Claude Trichet. Almost any central bank-related piece of news will have a tendency to move markets, especially when it comes to the ECB and US Federal Reserve, but this morning’s price action reflects the impact of commentary that contains a pronounced bias. While the ECB left rates steady at 4.00%, in line with expectations, Mr. Trichet's post-rate announcement press conference made it clear that there is some potential for a rate hike, as he said that some council members actually wanted to raise rates. Furthermore, during the Q&A session, Mr. Trichet went so far as to say that there is a chance that the central bank will raise rates next month. This represents a major shift in sentiment, as the debate in the markets before today centered more on when the ECB would eventually cut rates.

How about contestant number 3? His portfolio balance has been built all the way up to $181,611.14 on the back of a few very profitable GBP/JPY trades. This trader tends to hold his positions for 1-2 days, which is certainly not extensive enough to consider these “long-term” trades, but still much longer than the positions contestant 1/2 holds. However, since GBP/JPY is such a volatile pair, many of contestant number 3’s trades have been closed with 100 – 200 pip gains. While this sort of price action has obviously worked in contestant number 3’s favor, GBP/JPY – like most of the Japanese yen crosses – is extremely risky to trade as the pair can easily spike higher or lower and knock out a trader’s stops.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com