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Currency Trading Update

The line-up of the top 5 portfolios in the currency trading portion of the Million Dollar Portfolio Challenge has been shifting day-by-day. Contestant number 1 has managed to hold on to the top spot for 8 consecutive trading days with a balance of $1,029,959, and also had the portfolio with the third largest balance, by Tuesday's close. Contestant number 2 actually ended Monday up one spot higher in the rankings thanks to three short EUR/USD positions that netted him over $30,000 each and brought his portfolio balance up to $863,220.41. Likewise, contestant number 4 moved up three spots as he pocketed over $100,000 on the latest decline in EUR/USD. Finally, contestant number 5 did quite well for himself as he jumped up four places on the back of single profitable short GBP/JPY position that made him $140,374.26.

Event risk will pick up substantially over the next 24 hours, particularly for the euro, US dollar, and Australian dollar:

Asian Trading Session
01/14, 19:30 ET
Australian Net Employment Change, Unemployment Rate - The Australian labor markets have tightened substantially over the past few years, as the unemployment rate dropped to multi-decade lows of 3.9 percent in February. However, after the Reserve Bank of Australia left interest rates at a 16-year high of 7.25 percent for much of 2008, the labor markets have shown signs of deterioration, along with domestic demand in general. While the RBA has since cut rates by 300 basis points to 4.25 percent, and will likely continue to cut rates through the end of the year, the Australian unemployment rate is anticipated to pick up to 4.5 percent from 4.4 percent while the net employment change is forecasted to fall negative for the second straight month by 20,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 19:30 EDT.

European Trading Session
01/15, 05:00 ET
Euro-zone Consumer Price Index (DEC) - Eurostat inflation estimates for the Euro-zone have shown that CPI may have fallen to a 1.6 percent annual pace during December, which would mark a 2-year low but more importantly, a decline below the European Central Bank’s 2.0 percent inflation target. If Eurostat confirms this at 5:00 ET, the euro could pull back, especially ahead of the ECB's expected rate cut later in the morning. On the other hand, if CPI is higher than anticipated, the currency could gain as the markets will speculate that the central bank may reduce interest rates by less than previously expected.

US Trading Session
01/15, 07:45 ET - 08:30 ET
European Central Bank Rate Decision - The decline in Euro-zone CPI estimates below the European Central Bank’s 2.0 percent target, steady increases in unemployment, and increasingly pessimistic consumer and business confidence all suggest that the central bank will do as the market’s expect: cut interest rates by 50 basis points to 2.00 percent to match the 2005 record low. This easily leaves the 7:45 ET announcement as one of the most important pieces of event risk this week, but traders will also have to look out for comments by ECB President Jean-Claude Trichet during his post-meeting press conference at 8:30 ET. Mr. Trichet is one of the most opinionated central bank chiefs around, and suggestions that the ECB will continue to cut rates have the potential to lead the euro far lower. On the other hand, if the ECB goes the route of the BOE and signals that they may leave rates unchanged during their next meeting, the currency could actually rally.

01/15, 13:40 ET - 15:45 ET
Speeches by Fed's Lockhart, Evans, Yellen - Throughout the day on Thursday, multiple members of the Federal Open Market Committee (FOMC) will be speaking on the economy and monetary policy, including Atlanta Fed President Dennis Lockhart, Chicago Fed President Charles Evans, and San Francisco Fed President. Comments by FOMC members tend to be very market-moving, especially when it comes to interest rate expectations, so traders should keep an eye on the news wires as they could have negative or positive implications for risk sentiment. Typically, we tend to see a rise in risk aversion benefit the US dollar and Japanese yen, while increased investor confidence usually translates into gains for higher-yielding currencies and stocks.

Terri Belkas
Currency Strategist
Forex Capital Markets LLC

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