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ECB President Trichet: A Euro Bull's Best Friend

The latest results from the currency trading portion of the contest shows that the battle for the top 3 positions continues to be waged between EUR/USD traders and GBP/JPY traders. These tend to be two of the most popular pairs to trade in the forex markets, but in this particular contest, most participants have been drawn to EUR/USD.

Indeed, the contestant with the largest currency portfolio balance as of Thursday’s close is having much success with EUR/USD, as it ended the day at $196,247.60. In fact, this trader is starting to dominate the leaderboard as he holds 4 of the top 10 portfolio balances. Thus far, this trader has entered large EUR/USD positions, but has kept most of them open for less than an hour. However, a long EUR/USD trade that he held for approximately 24 hours has proven to be his biggest winner, as he bought the pair on Wednesday night and caught the 150 pip surge on Thursday morning. Contestant number 1 should thank European Central Bank (ECB) President Jean-Claude Trichet, as his hawkish commentary sparked the jump in EUR/USD.

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. Nevertheless, Mr. Trichet’s comments contained a pronounced policy bias, which is possibly to most market-moving piece of news you can get in forex. While the ECB left rates steady at 4.00%, Mr. Trichet said that some council members actually wanted to raise rates during post-rate announcement press conference. 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 the meeting centered more on when the ECB would eventually cut rates, and now it is clear that because the bank's primary mandate is to focus on price stability, they may actually hike by 25bps next month to 4.25%.

Meanwhile, the contestant with the second largest portfolio balance as of Thursday’s close – which amounted to $195,452.75 –

has a similar trading strategy to that of our leader, as he tends to execute multiple short-term positions. However, contestant number 2 prefers GBP/JPY, and on Thursday, he closed a total of 6 positions in the pair, netting nearly $23,000 in a single day. Looking at his specific trades, he flipped GBP/JPY throughout the morning and early afternoon, taking small 15-25 pip profits. This can be a risky, time-consuming strategy as GBP/JPY tends to be extremely volatile, but nevertheless, this obviously has worked quite well for contestant number 2.

As our currency contest leaders have shown, developing your own trading strategy – whether it focuses on technical levels or fundamentals –

is the key to getting ahead in the forex markets, but the important part is figuring out what works best for you as an individual.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com