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US Dollar Down On Bearish Rhetoric From Paulson, Bernanke

Edward Burke continues to hold on to the top spot in the currency trading portion of the contest and remains the contestant with the third largest portfolio balance in the overall Million Dollar Portfolio Challenge (stocks and currencies). While Burke’s profits of just $1,700 on Wednesday were mild, his slow and consistent gains since the start of the contest have been enough to keep him in the lead with a currency portfolio balance of $395,405.44. Furthermore, his method of executing very short-term trades insulates him from event risk in the markets, to a certain degree, as he is less likely to be holding positions at the time of volatility-inducing news.

Meanwhile, contestant number 2, Chi Ming Wong, had mixed luck trying to sell the Australian dollar. His first attempt was with AUD/USD, which he sold and ultimately lost $9,000+ on. He followed this up with an AUD/JPY short, which was working out well as Wong floated profits of over $12,000 as of Wednesday’s close. However, this position eventually lost money as well, which could put Wong further down in the ranks on Thursday. Indeed, the Australian dollar rocketed higher overnight as the Australian economy unexpectedly added on 29,800 workers in June, allowing the jobless rate to fall to 4.2 percent from 4.3 percent. Chinese and Indian demand for commodities have led mining and energy firms in Australia to continue hiring workers, leaving the industries the prime drivers of economic growth.

Contestant number 3, Carlos Godfrey, has been in and out of the top 3 over the past few weeks. On Wednesday, he ended the day up at $284,252.16 as he finally decided to close a long EUR/USD position that he entered on July 3. The pair has done little but consolidate over that period of time, but given the surge in EUR/USD this morning, it looks like Godfrey may have missed the big move. Comments by US Treasury Secretary Henry Paulson in his testimony before the House Committee have sent the US dollar tumbling across the majors. Paulson said that the market turmoil would take “additional time” and confirmed his free-market views that financial firms “must be allowed to fail.” The commentary suggests that the financial sector will not be bailed out if conditions get worse, which explains why Federal Reserve Chairman Ben Bernanke also said that the Fed wanted bank to raise capital. Though the Federal Reserve is not expected to cut rates again, the news is nevertheless quite bearish for the US dollar and equity markets.

Terri Belkas, Currency Analyst for DailyFX.com