Japanese Yen Positions Yield Big Profits For Leader

The contestant that held on to second place on Monday jumped to the number one spot on Tuesday, as he made nearly $29,000 on his short AUD/JPY position and brought his portfolio balance up to $329,801.05. Carry trades, which are inherently volatile and risky, appear to be his forte (for more on carry trades, see Tuesday’s Currencies Update).

Contestant number one sold AUD/JPY last Friday near 102.00, and managed to catch a bulk of the pair’s almost 200 pip decline that lasted until Tuesday morning. Fortunately, this trader exited his position before AUD/JPY rebounded over the course of Tuesday night and Wednesday morning, as the pair is now back above 102.00.Why did AUD/JPY rebound? First, we saw the Japanese yen crosses rise in general during that time period, as early gains in European stock indexes helped lead risky assets higher. Second, Australian retail sales proved to be much stronger than expected, as they jumped 0.7% in May, versus forecasts for a mild 0.1% gain. The news helped to reignite a rally in the Australian dollar across the majors, as traders quickly forgot the more neutral commentary recently issued by RBA Governor Glenn Stevens. Indeed, on Monday, the RBA left rates steady at a 12-year high of 7.25% and Mr. Stevens noted that though “the inflation outlook remains concerning, the board's assessment continues to be that demand growth will moderate this year,” suggesting additional rate increases would not be necessary.

Meanwhile, our EUR/USD scalper has fallen back to the number two spot with a portfolio balance of $327,251.11 (read Monday’s Currency Update for more on his strategy). Nevertheless, a total of 37 trades yielded contestant number two profits of over $5,500 on Tuesday, as he aggressively entered and exited positions during the morning and early afternoon.

Likewise, contestant number three - who ended Tuesday with a portfolio balance of $279,670.61 - has made the bulk of his profits with EUR/USD. Unlike contestant number two, however, this trader takes on somewhat longer-term positions. More specifically, he bought EUR/USD on Monday just below 1.5750 and made nearly $14,000 when he sold the pair near Tuesday’s highs. Contestant number three appears to be feeling quite bearish on the US dollar, as he has since sold the currency versus the euro and British pound. Both of these positions (long EUR/USD, long GBP/USD) are floating profits as dismal US labor market reports indicate that this Thursday’s non-farm payrolls release could be disappointing. In fact, Challenger, Gray, & Christmas reported that companies let go 46.7% more workers in June from a year earlier, led by financial services firms. Furthermore, ADP said that private firms let go 79,000 workers in June, led by manufacturers and goods-producing companies. Given the plunge in the employment component of ISM Manufacturing yesterday, we already knew that particular sector was a soft-spot for the labor markets. However, the ADP report also showed that the services sector reduced their workforces during that period, which essentially guarantees that Thursday’s non-farm payrolls report will reflect job losses for the sixth consecutive month.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com