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US Dollar, Yen Crosses Still Popular Amongst Leaders

The EUR/USD was the trade of the day last Friday as the currency pair was the frequently traded in the contest AND the most profitable for our contestants. Furthermore, EUR/USD is the preferred pair for the leader in the currency portion of the contest, as he has made nearly $120,000 via scalping – a trading strategy in which one executes short-term positions (possibly as short as 60 seconds) and collects extremely small gains. The key, however, is doing this multiple times so that the strategy becomes profitable. In contestant number 1’s case, he executes as few as 20 to over 100 positions during any given trading session, which is how he has gotten so far ahead in the contest. In fact, contestant number 1 has been able to hold into the lead even though he ended Friday down almost $1,500, as his currency portfolio balance is still ahead nearly $20,000 more than contestant number 2’s.

However, contestant number 2 is certainly racking up gains rather quickly, as he made over $10,000 on Friday to end the day with a currency portfolio balance of $289,310.55. His strategy: the Japanese yen crosses. More specifically, he has profited the most on EUR/JPY, which was the third most profitable pair on Friday, and AUD/JPY. The majority of the Japanese yen pairs have experienced a surge in volatility as the stock markets experienced massive sell-offs last week. Since equity indexes like the DJIA and the yen crosses are both considered to be “risky” assets, they tend to exhibit a solid correlation. Lately, credit market concerns and fears of additional multi-billion dollar write-downs by financial institutions has taken a hefty toll on shares around the world, which has only helped contribute to the wild price action in pairs like USD/JPY and EUR/JPY. Apparently, contestant number 2 is looking for additional declines in the DJIA and the Japanese yen crosses, as he is holding on to two short AUD/JPY positions (both of which are floating profits). However, the Australian dollar faces event risk overnight as the Reserve Bank of Australia (RBA) is scheduled to announce their next rate decision at 00:30 EDT. The RBA is widely expected to leave rates steady at 7.25%, but if RBA Governor Glenn Stevens issues hawkish commentary in his subsequent policy statement, the Australian dollar could see, at the very least, a brief rally. On the other hand, commentary that focuses more on the downside risks to growth and tightening credit conditions could weigh heavily on the currency, as the markets will cut back expectations that the RBA will consider raising rates in order to fight inflation.

Finally, contestant number 3 finished Friday with a balance of $260,224.18. However, he is still holding on to two losing positions: short GBP/USD and long USD/JPY. Indeed, he has been holding on to these pairs since last Thursday, so the US dollar will have to make a serious comeback over the course of the day before contestant number 3 will be able to recoup his losses. Furthermore, with Tuesday’s release of ISM Manufacturing expected to show that business activity in the US sector contracted for the fifth consecutive month, US dollar strength may be limited in the near-term.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com