Currency Trading Update - 12/2/08

At the start of this week, the majority of contestants stuck with the most popular currency pairs in the forex markets: EUR/USD (32.3%), USD/JPY (14.99%), and GBP/USD (11.0%). Trailing close behind at 10.3% was GBP/JPY, but if you're looking at our top 5 contestants, this JPY cross is easily the currency pair of choice. That said, due to the volatile nature of the JPY crosses, they tend be significantly more risky as trading statistics show that contestants lost the most in USD/JPY and GBP/JPY yesterday.

Indeed, contestant number 1 from Friday - who we thought would hold on to his spot thanks to a short GBP/JPY position that netted $121,360.56 in profits - ended Monday as contestant number 17. This was due to a few losing trades which brought his balance down from $255,117.85 to $239,233.32. Meanwhile, a contestant that wasn't even in the top 20 a few days ago ended yesterday in the top spot with a currency portfolio balance of $333,775.59. How did he do it? A series of short GBP/JPY positions entered on Friday that allowed him to rake in over $135,000 when the trades were closed on Monday.
As evidenced by the fall of previous top contestants in the currency trading portion of the Million Dollar Portfolio Challenge, it doesn't take much to shake up the leaderboard.
Now on to the event risk traders should keep an eye on over the next 24 hours:
Asian Trading Session
12/02, 19:30 ET
Australian GDP (3Q) - Growth in Australia is expected to have slowed further during Q3 to a 0.2 percent pace, down from 0.3 percent in Q2. While the economy has been relatively resilient compared to countries like the US and the UK, the Reserve Bank of Australia has already said that they expect growth to cool further and bring down inflation pressures, which is why the bank slashed rates by 100bps last night to 4.25 percent. A weaker than expected GDP result could weigh on the Australian dollar, as it will lead the markets to price in further rate cuts by the RBA in coming months.

European Trading Session
12/03, 5:00 ET
Euro-zone Retail Sales (OCT) - Euro-zone retail sales are expected to have fallen 0.4 percent during October, leaving the annual rate at a disappointing -1.5 percent. However, given the 1.6 percent plunge in spending in Europe's largest economy, Germany, there is potential downside risk for Wednesday's report. The Euro-zone has already fallen into recession, as indicated by the 0.2 percent contraction in GDP during Q2 and Q3, and continued declines in consumption would only suggest that GDP will fall negative in Q4 as well. As a result, a weaker-than-expected retail sales reading should weigh on the euro, especially since the results will add to speculation that the European Central Bank will cut rates aggressively on Thursday.

US Trading Session
12/03, 10:00 ET
US ISM Non-Manufacturing (NOV) - Conditions in US non-manufacturing sector - which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance - are anticipated to have worsened in November as the Institute for Supply Management index is estimated to fall to new record low of 42.0 from 44.4. Indeed, consumer confidence remains exceptionally weak, and the National Bureau of Economic Research (NBER) has already announced that the US economy has been in recession since December 2007. A disappointing result could weigh on the US dollar, but traders should also keep an eye on the employment component as a gauge for Friday's US non-farm payroll (NFP) report.

12/03, 15:00 ET
Reserve Bank of New Zealand Rate Decision
The Reserve Bank of New Zealand has cut rates during their past three meetings, each more aggressive than the last, and the same is expected for the RBNZ’s next rate announcement on Wednesday at 15:00 ET. Indeed, a Bloomberg News poll shows that economists anticipate that the central bank will slash rates by a whopping 150 basis points to a 5-year low of 5.00 percent. The same goes for Credit Suisse overnight index swaps, which are close to pricing in the same thing. Following the bank’s last rate decision, RBNZ Governor Alan Bollard suggested that future rate cuts would depend on data confirmation of easing inflation pressures and “how the global financial developments play out.” Thus far, economic data in New Zealand has signaled cooling price growth, as the RBNZ’s 2-year inflation expectation survey fell to 2.7 percent from 3.0 percent in Q4 and food prices fell negative for the first time in 14-months during October. Meanwhile, financial market conditions have only deteriorated, leaving the odds in favor of a sharp rate cut by the RBNZ that could trigger declines in the New Zealand dollar on Wednesday. Traders should beware though that if the RBNZ's policy statement suggests they may leave rates steady during their next meeting, the Kiwi could actually gain.
Terri Belkas
Currency Strategist

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