US Dollar Volatility Catapults Contestant to Top Spot

Our scalper is back in a big way, as he jumped to the top spot and finished Wednesday with a currency portfolio balance of $315,651.11. In fact, this contestant made almost $61,000 in a single day on a total of 88 EUR/USD trades. Volatility in the pair was high yesterday as the Federal Reserve announced their rate decision in the afternoon. As expected, the Federal Open Market Committee (FOMC) left rates steady at 2.00% in a 9-1 vote, as Dallas Fed President Fisher dissented in favor of a rate hike. Furthermore, the FOMC’s policy statement said that downside risks to growth had "diminished somewhat" while the "upside risks to inflation and inflation expectations have increased." However, the US dollar actually weakened on the release of the statement, as it failed to signal an imminent rate increase. Meanwhile, this morning’s bullish US Q1 GDP revisions to 1.0% from 0.9% and stronger-than-expected existing home sales data has done little to boost the greenback, as the currency appears to be in true bear-market form.

Fortunately for contestant number 2, he closed out his long USD/JPY positions before any of this happened, reaping a net profit of over $18,000 and ending Wednesday with a portfolio balance of $292,873.84. He had been holding this position for two weeks, looking for a break to the upside. However, US stock markets like the DJIA – which hold a correlation with the Japanese yen crosses – took a heavy hit on Thursday morning as Goldman Sachs downgraded Citigroup and General Motors shares, and also downgraded the entire US brokerage sector from “attractive” to “neutral.” This news has only served to exacerbate the market’s bearish sentiment on the financial sector and has stirred fears that the worst for the credit markets has yet to come. As a result, this creates additional downside risks for the US stock markets, and thus, Japanese yen crosses like USD/JPY.

Contestant number 3 isn’t even bothering with the US dollar, as he is focusing on AUD/NZD. Unfortunately, he is currently floating a loss with the pair as he entered a short position near 1.2600 (at the time of writing, AUD/NZD was trading above 1.2650). Nevertheless, prior gains have helped him accumulate over $160,000 in profits since the start of the contest, and as a result, he has managed to stay in the top 3. Looking at AUD/NZD, 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. Event risk for the New Zealand dollar will pick up this evening, as Q1 GDP will be released at 18:45 EDT. Expansion in New Zealand is anticipated to contract for the first time in just over two years, as GDP is expected to fall 0.3 percent and drag the annualized figure down to 2.1 percent from 3.7 percent. The culprit? Record high interest rates. The Reserve Bank of New Zealand has left rates at a restrictive 8.25 percent since last summer in an attempt to fight rocketing inflation pressures in the economy. Indeed, a decline in GDP is essentially the intended result of these monetary policy actions, as weaker expansion will weigh on inflation pressures, and the news will likely lead the markets to continue speculating that the RBNZ will cut rates in Q3.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com