On Wednesday, the top 3 contestants showed that all sorts of trading styles can get you ahead. However, contestant number 3 has highlighted the importance of event risk in the forex markets. It is very important to keep an eye on the release of economic indicators for the currencies you are trading, as they can determine whether you rake in profits - like contestant number 3 did with GBP/USD - or rack up losses.
Our top contestant has dominated the leaderboard for the past eight days on the back of big gains earlier in the contest. While contestant number 1’s portfolio balance of $267,657.95 (as of Wednesday’s close) is nothing to scoff at, the other leaders in the top 3 are building up their balances on a daily basis, so he may be in danger of losing his spot. This contestant appears to be waiting for a break higher in the USD/JPY, as he has held a long position in the pair since last Wednesday. The pair has done little but consolidate over the past week, but we tend to see that the longer a consolidation period lasts, the more powerful the breakout will be in the end.
Though USD/JPY gained some traction during the European trading session, the pair has had trouble breaking above 108.00 as risky assets have generally been trading quietly, such as the DJIA’s mild declines this morning. In fact, the DJIA dipped down for a test of 12,000 following the release of weaker-than-expected US manufacturing data, but since this is a psychologically important support level, the stock index may have difficulty making it much lower today. Taking a look at the US data, the June reading of the Philadelphia Fed’s manufacturing index unexpectedly fell to a reading of -17.1 from -15.6, marking the seventh consecutive month of contraction in the sector. A breakdown of the index shows an unsurprising surge in the prices paid component, as raw material costs skyrocket. However, like the Empire Manufacturing report we saw last week, producers appear to be having trouble passing on costs to customers as the prices received component actually slipped. Meanwhile, the indexes measuring new orders and shipments both fell negative as well, suggesting that demand remains tepid, while a decline in the employment gauge does not bode well for June unemployment and non-farm payroll reports.
In the meantime, contestant number 2 continues to scalp EUR/USD aggressively, as he ended Wednesday with a portfolio balance of $242,840.56. However, this trader may want to consider getting some more sleep as his execution of 95 trades in EUR/USD only netted him $4,500 yesterday, compared to $28,000 on Tuesday. Contestant number 3, on the other hand, appears to be taking a more moderate approach. This has obviously worked in his favor as he ended Wednesday with a portfolio balance of $237,820.55, with the majority of his recent profits in an open GBP/USD position that is currently up over $30,000.
Contestant number 3 bought the pair on Wednesday morning near 1.9550, but since then, GBP/USD has surged higher thanks to incredibly strong UK consumer spending numbers, which were released at 4:30 EDT. Retail sales surged 3.5% during the month of May – the sharpest rise since record-keeping began in January 1986 – while the annualized measured jumped 8.1%, thanks to a pickup in sales of seasonal food and clothing. The news helped to offset speculation that the Bank of England would leave rates steady throughout the year, as they would try to allow a UK economic slowdown to quell rising price pressures. However, with consumption apparently still resilient, the Bank of England will see this as yet another upside risk for inflation and the Monetary Policy Committee will be more likely to consider hiking rates in the near-term.
Contestant number 3 also entered a small USD/CAD position this morning following the 7:00 EDT release of Canadian CPI. USD/CAD tumbled more than 75 pips on the inflation numbers, so this trader is clearly looking for a continuation of the move as he sold the pair near 1.0125. Canadian CPI jumped 1.0% in May – the biggest gain since January 1991 – bringing the annualized rate to 2.2%, with the surge due primarily to record high energy prices. In fact, the Bank of Canada’s core CPI measure – which excludes food and energy – remained unchanged at 1.5%. Nevertheless, the strong headline CPI figures serve as a reminder of the Bank of Canada’s surprise decision to leave rates steady at 3.00 percent on June 10, when they called rates “appropriately accommodative”. Furthermore, the Bank’s tone turned increasingly hawkish as they said, “the balance of risks to the Bank's April projection for inflation in Canada has shifted slightly to the upside,” and if “current levels of energy prices persist, total CPI inflation will rise above 3 percent later this year.” Clearly, the Bank of Canada’s inflation concerns are well warranted, and as a central bank that has changed the course of monetary policy rather quickly in the past, there is some potential that they will consider a rate hike later in the year.
Congratulations to our top traders and good luck!
Terri Belkas, Currency Analyst for DailyFX.com