Range-bound Markets Frustrate Leader, Yield Gains For Scalpers

The top 3 leaders in the currency portion of the contest have all focused on different currency pairs, as contestant number 1 patiently holds on to a long USD/JPY position, contestant number 2 scalps EUR/USD, and contestant number 3 tests his luck with GBP/USD. As a result, they all have different fundamental factors to watch, but with DJIA futures tumbling ahead of the market opening, contestant number 1 may have to weigh the risks of his position as the Japanese yen crosses may be in danger of falling.

The leaderboard for the currency trading portion of the contest has not changed much lately, as contestant number 1 remains comfortably ahead of the others with a portfolio balance of $271,516.11, as of Tuesday’s close. He is still holding on to the same long USD/JPY position from last Wednesday, as he got in near 107.00. USD/JPY has done little but consolidated between 107.65 – 108.35, similar to the consolidation of the DJIA between 12,076 – 12,300. However, DJIA futures have ticked lower this morning on a combination of more than 1% declines in UK and European equity markets on the back of concerns about stability in the financial sector, and on news that US mortgage applications tumbled 8.8% last week. While the Mortgage Bankers Association’s (MBA) index is higher than it was last month at 507.9 from 502.3, it is still very close to six-year lows. As a result, it is clear that the US housing market remains in shambles, and the supply of homes far outweighs demand, which will only lead prices lower.

Contestant number 2, who ended Tuesday with a balance of $238,340.56, continues to build up his portfolio by scalping EUR/USD. As we explained in yesterday’s Currencies Update, this trader enters positions in the pair, holds them for only a few minutes, and closes them on profits of 2-8 pips. On Monday alone contestant number 2 made nearly $28,000 on a total of 129 EUR/USD trades, as just over 70% of his positions were profitable. This highlights one of the perks of the forex markets: trading remains liquid 24 hours a day, there is almost always some sort of intraday volatility, and bid-ask spreads are typically low, making it possible to trade frequently over the course of a day, an hour, or even a few minutes.

Meanwhile, contestant number 3 has focused primarily on the British pound lately, as he made over $20,000 on a single GBP/CHF trade, bringing his portfolio balance up to $232,500.09. He sold GBP/CHF on Monday morning as the pair failed its test of 2.0500, and Tuesday’s broad-based plunge in the British pound helped bring him all of his gains. While UK CPI was stronger than expected upon release yesterday at 3.3% - prompting Bank of England Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling explaining how inflation had gotten so out of control, and how the Bank plans on bringing CPI back down to the 2.0% target - Mr. King’s apparent complacency and view that the outlook for rates was “uncertain” sparked the sell-off in the currency. Following the sharp decline in GBP/CHF toward 2.0315, contestant number 3 promptly exited his position.

However, contestant number 3 took the other side of the trade shortly after and bought GBP/USD near 1.9515 on Tuesday morning. He is still holding on to this position, as GBP/USD consolidates between 1.9475 – 1.9550/75, but he was definitely floating a loss for a little while on Wednesday morning following the release of the Bank of England’s June meeting minutes. The minutes revealed that the June 5 decision to leave the Bank Rate steady at 5.00% was the result of an 8-1 vote, as the sole dissenter voted in favor of a 25bp cut to 4.75%. This was not entirely surprising, as BOE Monetary Policy Committee member David Blanchflower is consistently the most dovish member, as he fears that the UK is in for a US-style economic slowdown and possible recession. However, the minutes also showed that some members were so concerned about upside inflation risks that they had actually considered raising the Bank Rate.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com