US Manufacturing Data Contributes To Choppy Price Action

As of yesterday’s close, the EUR/USD remains the most frequently traded pair in the contest AND the most profitable for our contestants. The pair has experienced very choppy price action this morning, testing resistance at 1.5800, as German data showed that retail sales and labor market conditions in the Euro-zone’s largest economy remain robust. However, EUR/USD was subsequently pulled lower at the start of the US trading session as the Institute for Supply Management's (ISM) index of conditions in the manufacturing sector in June unexpectedly rose above 50 - indicating expansion - for the first time in five months to 50.2 from 49.6. A breakdown of the report reflects a surge in the prices paid component, which hit a 34-year high of 91.5 from 87.0, as rocketing commodity prices boost input costs. Meanwhile, the employment component slipped down to 43.7 from 45.5, marking the eighth consecutive month that manufacturers have let workers go. This does not bode well for this Thursday's US non-farm payrolls report, as layoffs in this sector will weigh on the overall index.

EUR/USD is also the preferred pair for the leader in the currency portion of the contest (read Monday’s Currency Update for more on his strategy). Contestant number 1 has made over $120,000 since the start of the contest and finished yesterday with a currency portfolio balance of $321,671.11. While his profits of $2,140 were relatively small on Monday, he has been able to hold onto the lead as his currency portfolio balance is still ahead more than $25,000 more than contestant number 2’s.

Nevertheless, contestant number 2’s portfolio balance is nothing to scoff at, as it amounted to $293,224.93 as of Monday’s close. This contestant is still trying his luck with carry trades, which are currency pairs that consist of a high-yielding currency versus a low-yielding currency. In conditions in the market are fairly stable and risky assets are appreciating, carry trades tend to appreciate. However, when sentiment in the markets becomes more risk averse – as they have been lately – carry trades tend to pull back sharply. Contestant number 2 is clearly looking for a continuation of this trend as he is holding on to two short AUD/JPY positions (both of which are floating profits). The pair remains heavy as the Reserve Bank of Australia (RBA) left rates steady at 7.25% last night while RBA Governor Glenn Stevens noted that tighter financial conditions and rising fuel costs were “working to restrain demand,” suggesting that additional rate hikes will not be necessary this year.

Contestant number 3 has had a rough run with EUR/USD and GBP/USD lately, as he actually lost money on Monday. Regardless, he still finished the day in the top 3 with a portfolio balance of $266,102.34. Looking ahead, heavy event risk on both the European and US sides of the coin should provide some volatility for the euro and US dollar, as the ECB rate decision and US non-farm payrolls will both hit the wires on Thursday.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for