"Long Carry" Strategies Have Kept Many Of Our Leaders on Top

The currency trading portion of the contest is getting heated as two of yesterday's leaders remain in the top three, and no surprises here: the British pound remains the most popular currency to trade versus the Japanese yen and Swiss franc.

Our first place leader on Tuesday was actually our third place contestant on Monday, as he made a comeback with a portfolio balance of $142,374.28. How? Contestant number 1 has had good luck with GBP/JPY, as he booked profits on the heavily leveraged long position he entered on Friday afternoon. He was clearly looking for a bit of a bottom at the 204.50 -- which happened to be the case -- and practiced good money management to close his position at 206.00. Indeed, the Japanese yen tumbled across most of the majors on Tuesday, as USD/JPY, EUR/JPY, and GBP/JPY all jumped amidst building appetite for risk. The moves were in line with the gains witnessed in the US stock markets, as the DJIA rose 0.55 percent to close at 12,548.35 while Treasuries tumbled, leading yields on 2- and 10-year notes to climb 7bps.

Meanwhile, contestant number 2 has held onto her spot for the second day in a row as her closing portfolio balance on Tuesday amounted to $136,802.38. Like our first place contestant, our second place contestant has benefited from the recent rebound in carry trades. The bulk of her most recent gains came from a long GBP/CHF entry. As we mentioned yesterday, we believe she was utilizing technical analysis here, as the trader bought GBP/CHF right near critical support at 2.0251 following the pair's sharp decline on Friday afternoon. While the pair fell as low as 2.0180 last week, 2.0250 has helped to stem many other major declines over the past month. Contestant number 2 exited her position early on Tuesday afternoon, however, indicating that she missed out on the massive rally later in the day. That wasn't all for this contestant though, as she stuck with a "long carry" strategy and booked profits on a very short-term USD/JPY long position in the afternoon.

Our third place contestant is likely to be a threat to the other leaders, as he is holding on to an extremely profitable long GBP/JPY position. Like contestant number 1, contestant number 3 entered his long position on Friday afternoon as GBP/JPY consolidated near 204.50. As of Tuesday’s close, contestant number 3 had a portfolio balance of $134,224.25. However, his long GBP/JPY position was still open at yesterday's close, suggesting that he may not be waiting in the wings for long, as the pair has rocketed over 200 points higher during the European trading session. Indeed, the resurgence in European stock markets, including Germany’s DAX index and France's CAC 40 index, has helped propel carry trades even higher across the board. However, given this morning’s release of U.S. durable goods orders -- which showed a smaller-than-expected decline of 0.5 percent during the month of April -- it remains to be seen if U.S. stock markets will be as resilient as their European counterparts.

Congratulations to our top three traders!

Terri Belkas, Currency Analyst, DailyFX.com

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