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Currency Trading Update

The most striking part of the stats from Tuesday's trading session is the sheer amount of losses traders sustained in GBP/USD. In fact, gross P/L in GBP/USD was down more than 7 times as much last week's average on January 19, and down 4 times more than worst day for GBP traders for the week on January 13. Given the sharp plunge in the currency pair, the hefty losses suggest that most contestants were looking for a bottom.

Someone who did manage to come out of the markets with gains in GBP was contestant number 1, who jumped up a whopping 10 spots in the rankings from the previous trading session thanks to 3 hugely profitable short GBP/JPY positions that netted nearly $530,000 and pushed his portfolio balance up to $1,146,936.13. However, at the time of writing, this contestant looked likely to fall out of the top spot as he flipped his positions on Tuesday afternoon and is now floating losses of over $150,000. This leaves potential for contestant number 2 to reclaim the top spot, as he has no positions open and has a currency trading portfolio balance of $1,104,676.02. Furthermore, with just over 2 weeks left in the Million Dollar Portfolio Challenge and with volatility remaining high in the forex markets, the top spot may be anyone's for the taking.

Forex volatility should remain high over the next 24 hours as a few key economic indicators will be released:

Asian Trading Session
01/21, 22:00 ET
Bank of Japan Rate Decision - The Bank of Japan (BOJ) is forecasted to leave rates unchanged at the conclusion of their policy meeting, but with interest rates already at an ultra-low 0.10 percent, there isn't much room to make monetary policy more accommodative without going back to zero-interest rate policy (ZIRP). Thus, it will be important to gauge comments by BOJ Governor Masaaki Shirakawa and to look at the BOJ's Monthly Report on January 23 at 0:00 ET, but the outlook doesn't look good. Indeed, Japan's Cabinet Office issued an assessment of the economy during the month of January last night, and indicated that conditions were "worsening rapidly" as exports and industrial output plunge, corporate profits fall "substantially," business investment declines, the employment situation deteriorates "rapidly," and private consumption takes on a "weak tone." If the Mr. Shirakawa's comments exacerbate bearish sentiment in the markets, Asian equities are likely to continue falling, and may subsequently boost the Japanese yen further amidst massive deleveraging.

European Trading Session
01/22, 04:00 ET
European Central Bank Monthly Report (JAN) - The European Central Bank’s Monthly Report is likely to highlight the bleak outlook for the Euro-zone economy and expectations for a decline in inflation pressures in the near-term, and may help to provide the clearest gauge of the ECB's policy bias going forward. Given the broadly bearish expectations for the Euro-zone in general, the report has potential to weigh on the euro. However, since the ECB will not be issuing updated growth and inflation projections until March, the news may not be very market-moving.

US Trading Session
01/22, 08:30 ET
Canadian Retail Sales (NOV) - The release of Canadian retail sales could prove to be disappointing, as spending is anticipated to have fallen 2.0 percent during November. This would mark the second straight contraction, and with unemployment rates rising and business activity slowing, continued declines in retail sales may be to come. If the indicator falls in line with or more than expectations, the Canadian dollar could pull back further, especially since the Bank of Canada suggested on Tuesday that they may be open to making monetary policy more accommodative after slashing interest rates to a record low of 1.00 percent. However, if retail sales only fall very slightly or actually rise, the Canadian dollar could surge in response.

Terri Belkas
Currency Strategist
Forex Capital Markets LLC

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