It appears that the traders in the top 3 are generally avoiding the US dollar ahead of the Federal Reserve’s rate decision at 14:15 EDT this afternoon, as the news is sure to spark significant volatility not only in the greenback, but also the Treasury and US stock markets. In fact, the only trader who focused on the US dollar on Tuesday – contestant number 1 - did nothing but lose money.
Contestant number 1 has had a tough run with EUR/USD, and while he managed to hold onto the top spot with a portfolio balance of $277,639.17 by Tuesday’s close, he actually lost money. In fact, contestant number 1 has made multiple attempts to short EUR/USD over the past 24 hours, but broad US dollar weakness ahead of this afternoon’s Federal Reserve rate decision has consistently led him to either close his positions or get stopped out.
The Federal Open Market Committee (FOMC) is widely expected to leave rates steady at 2.00%, but fed fund futures are pricing in a 56% chance of a 25 basis point rate hike by September. Indeed, indications of rising price pressures in the US have led various FOMC members, including Chairman Ben Bernanke, to issue hawkish commentary that has suggested some potential for a rate increase. Assuming the FOMC leaves rates unchanged as expected, the markets will be paying the most attention to the release of the policy statement following rate announcement at 14:15 EDT, as they will be scouring the text to see if the Committee still signals that tighter monetary policy may be needed this year. If this is indeed the case, the US dollar could rally this afternoon.
Meanwhile, contestant number 2 has traded a large variety of currency pairs, which obviously works for him as made nearly $30,000 on Tuesday to end the day with a balance of $273,803.60. The pairs he chose are certainly not the most popular in the contest, as he executed trades in USD/CHF, GBP/CHF, EUR/CHF, EUR/JPY and CHF/JPY. Since most of these currency pairs are carry trades, in which a trader buys a higher-yielding currency (e.g. GBP at 5.00%) against a lower-yielding currency (e.g. CHF at 2.75%) to benefit from the yield differential (e.g. 2.25%), they tend to see quite a bit of intra-day volatility. However, we’ve also seen that this pairs have been consolidating within tight ranges, providing the optimal environment for short-term traders.
Like contestant number 2, contestant number 3 got ahead on Tuesday and finished with a portfolio balance of $268,406.22 thanks to profits on EUR/CHF. However, he may not find himself in the top 3 after Wednesday’s close, as he is currently holding a short AUD/NZD position that he entered near 1.2600. The pair has been in a relentless uptrend since late March and is still climbing today, as conditions in the Australian economy are far more robust than that of New Zealand. Furthermore, the Reserve Bank of Australia has continued to issue hawkish commentary, while the Reserve Bank of New Zealand has actually signaled that a rate cut may be on the way in Q3.
Congratulations to our top traders and good luck!
Terri Belkas, Currency Analyst for DailyFX.com