Currency Trading Update

Yesterday we suspected that contestant number 1 might lose his top spot in the rankings due to a few long GBP/JPY positions that had gone against him. However, GBP/JPY subsequently rebounded higher on Wednesday afternoon, preventing his balance from plunging by the time the trading day ended. While this trader was also able to buy GBP/JPY on the pair's dip yesterday, over $365,000 in losses on those GBP/JPY long positions is very likely to leave his portfolio balance down by Thursday's close. Nevertheless, he also has two other portfolios in the top 5 - the third highest by trading GBP/JPY and fourth highest by trading EUR/USD - suggesting that he has positioned himself well overall.

Contestant number 2, on the other hand, has held his position in the rankings simply by not trading, as his currency trading portfolio balance remains high at $1,104,676.02. Of course, a few profitable trading days by other traders could easily knock him down a few notches before the contest ends in just over two weeks.

The British pound and Canadian dollar may both face bearish pressures over the next 24 hours. Here are the indicators you should be watching:

Asian Trading Session
*No key indicators due to be released.

European Trading Session
01/23, 04:30 ET
UK Gross Domestic Product (4Q A) - The advanced reading of Q4 GDP for the UK is forecasted to contract for the second straight quarter at a rate of -1.2 percent, which would match the worst decline in 18 years. The UK has been hit particularly hard by the credit crunch, especially since the country became one of the biggest financial centers in the world. This has translated into a full-on collapse of the housing market, climbing job losses, and weak consumption. Furthermore, with growth slowing around the world, demand for British exports has declined as well, putting a large burden on manufacturers. Overall, a greater-than-expected decline could lead the British pound lower as the data would raise the odds the Bank of England will cut rates further in coming months. On the other hand, if GDP is a bit better than forecasts, the currency could surge.

US Trading Session
01/23, 07:00 ET
Canadian Consumer Price Index (DEC) - Since the Bank of Canada put a focus on inflation, and its potential to fall below zero this year, Friday's release of the Canadian Consumer Price Index (CPI) will be quite important. At 7:00 ET, CPI for December is anticipated to contract for the third straight month at a rate of 0.4 percent while the annualized pace is forecasted to tumble to a nearly 2-year low of 1.3 percent. Meanwhile, the Bank of Canada’s core CPI measure may actually hold steady at a 1.5 year high of 2.4 percent. Given the sharp drop in commodity prices since the summer and slowing in the Canadian economy, there is potential for weaker-than-expected readings and thus, the Canadian dollar could pull back further.

Terri Belkas
Currency Strategist
Forex Capital Markets LLC

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