Top 3 Traders Exhibit Very Different Trading Styles

For the sixth consecutive day, we have the same contestant on top as this trader ended Monday with a currency portfolio balance of $274,425.27. He is still holding on to the same long USD/JPY position from last Wednesday, as he got in near 107.00. However, USD/JPY has done little but consolidated between 107.65 – 108.35, similar to the consolidation of the DJIA between 12,076 – 12,300. Indeed, we tend to see that the Japanese yen crosses have a strong correlation with US equity indexes, as they both tend to gain at times that the markets exhibit risk-seeking behavior and usually decline when risk aversion returns. Nevertheless, contestant number 1 is ahead by a comfortable margin, so he certainly has the option of leisurely holding on to a profitable position and waiting for a larger move.

Contestant number 2, who ended Monday with a portfolio balance of $210,425.32, is the polar opposite of contestant number 1 when it comes to trading styles. This contestant shows a clear preference for EUR/USD, which is the most popular pair to play amongst traders in the currency portion of the contest. The unusual thing about contestant number 2 is the sheer number of trades he executes. During Monday’s trading session, he entered 61 different EUR/USD positions and held them for approximately 1-5 minutes. This method is known as scalping, as he takes small profits of 2-8 pips at time. Just looking at his trading from Monday as a sample, his trades were in the money almost 70% of the time. However, contestant number 2 must be feeling a little tired: looking at his trading up until the time of writing, he has traded a total of 111 times since Monday’s close as he executed positions every few minutes all day yesterday, last night, and throughout the early morning. As contestant number 2 has shown, taking small profits on multiple positions can get you ahead in the game, but can also be extremely time consuming.

Meanwhile, contestant number 3 trades at a much more measured pace, but still finished in the top 3 with a currency portfolio balance of $203,889.39. His most recent gains were on the back of a long USD/CHF position that he held yesterday morning, as the pair recovered from a test of 1.04. Currently, he is holding a long GBP/CHF position that he entered this morning. He is likely looking for a recovery in the British pound in general, as the currency plummeted across the majors following the release of UK inflation data at 4:30 EDT.

At first glance, the move was somewhat surprising as the annual rate of UK CPI growth rocketed to a nearly 16-year high of 3.3%, prompting Bank of England Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling explaining how inflation had gotten so out of control, and how the Bank plans on bringing CPI back down to the 2.0% target. When we see indications of strong consumer price growth, the news is usually bullish for the nation’s currency as it raises the risks that the country’s central bank will increase interest rates in order to maintain price stability. However, it was the very letter than Mr. King penned that hammered the British pound lower, as he indicated that the Bank of England’s attempts to quell inflation growth would be over the course of two years, rather than one. Furthermore, Mr. King said that the “path of Bank Rate that will be necessary to meet the 2% target is uncertain,” killing any hopes in the markets that rate hikes by the Bank of England were a sure thing. Indeed, the Bank of England has a dual mandate to maintain both price stability and economic growth. With the UK economy already slowing markedly, the Bank is worried that rate increases will push the country into recession. As a result, they are likely to leave rates steady throughout the year, as the Bank hopes that the UK economic slowdown will help to drive down domestic price growth.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst of DailyFX.com

Range-bound Markets Frustrate Leader, Yield Gains For Scalpers

The top 3 leaders in the currency portion of the contest have all focused on different currency pairs, as contestant number 1 patiently holds on to a long USD/JPY position, contestant number 2 scalps EUR/USD, and contestant number 3 tests his luck with GBP/USD. As a result, they all have different fundamental factors to watch, but with DJIA futures tumbling ahead of the market opening, contestant number 1 may have to weigh the risks of his position as the Japanese yen crosses may be in danger of falling.

The leaderboard for the currency trading portion of the contest has not changed much lately, as contestant number 1 remains comfortably ahead of the others with a portfolio balance of $271,516.11, as of Tuesday’s close. He is still holding on to the same long USD/JPY position from last Wednesday, as he got in near 107.00. USD/JPY has done little but consolidated between 107.65 – 108.35, similar to the consolidation of the DJIA between 12,076 – 12,300. However, DJIA futures have ticked lower this morning on a combination of more than 1% declines in UK and European equity markets on the back of concerns about stability in the financial sector, and on news that US mortgage applications tumbled 8.8% last week. While the Mortgage Bankers Association’s (MBA) index is higher than it was last month at 507.9 from 502.3, it is still very close to six-year lows. As a result, it is clear that the US housing market remains in shambles, and the supply of homes far outweighs demand, which will only lead prices lower.

Contestant number 2, who ended Tuesday with a balance of $238,340.56, continues to build up his portfolio by scalping EUR/USD. As we explained in yesterday’s Currencies Update, this trader enters positions in the pair, holds them for only a few minutes, and closes them on profits of 2-8 pips. On Monday alone contestant number 2 made nearly $28,000 on a total of 129 EUR/USD trades, as just over 70% of his positions were profitable. This highlights one of the perks of the forex markets: trading remains liquid 24 hours a day, there is almost always some sort of intraday volatility, and bid-ask spreads are typically low, making it possible to trade frequently over the course of a day, an hour, or even a few minutes.

Meanwhile, contestant number 3 has focused primarily on the British pound lately, as he made over $20,000 on a single GBP/CHF trade, bringing his portfolio balance up to $232,500.09. He sold GBP/CHF on Monday morning as the pair failed its test of 2.0500, and Tuesday’s broad-based plunge in the British pound helped bring him all of his gains. While UK CPI was stronger than expected upon release yesterday at 3.3% - prompting Bank of England Governor Mervyn King to write a letter to Chancellor of the Exchequer Alistair Darling explaining how inflation had gotten so out of control, and how the Bank plans on bringing CPI back down to the 2.0% target - Mr. King’s apparent complacency and view that the outlook for rates was “uncertain” sparked the sell-off in the currency. Following the sharp decline in GBP/CHF toward 2.0315, contestant number 3 promptly exited his position.

However, contestant number 3 took the other side of the trade shortly after and bought GBP/USD near 1.9515 on Tuesday morning. He is still holding on to this position, as GBP/USD consolidates between 1.9475 – 1.9550/75, but he was definitely floating a loss for a little while on Wednesday morning following the release of the Bank of England’s June meeting minutes. The minutes revealed that the June 5 decision to leave the Bank Rate steady at 5.00% was the result of an 8-1 vote, as the sole dissenter voted in favor of a 25bp cut to 4.75%. This was not entirely surprising, as BOE Monetary Policy Committee member David Blanchflower is consistently the most dovish member, as he fears that the UK is in for a US-style economic slowdown and possible recession. However, the minutes also showed that some members were so concerned about upside inflation risks that they had actually considered raising the Bank Rate.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

Trader Makes Over $30K On Surprising UK Retail Sales Report

On Wednesday, the top 3 contestants showed that all sorts of trading styles can get you ahead. However, contestant number 3 has highlighted the importance of event risk in the forex markets. It is very important to keep an eye on the release of economic indicators for the currencies you are trading, as they can determine whether you rake in profits - like contestant number 3 did with GBP/USD - or rack up losses.

Our top contestant has dominated the leaderboard for the past eight days on the back of big gains earlier in the contest. While contestant number 1’s portfolio balance of $267,657.95 (as of Wednesday’s close) is nothing to scoff at, the other leaders in the top 3 are building up their balances on a daily basis, so he may be in danger of losing his spot. This contestant appears to be waiting for a break higher in the USD/JPY, as he has held a long position in the pair since last Wednesday. The pair has done little but consolidate over the past week, but we tend to see that the longer a consolidation period lasts, the more powerful the breakout will be in the end.

Though USD/JPY gained some traction during the European trading session, the pair has had trouble breaking above 108.00 as risky assets have generally been trading quietly, such as the DJIA’s mild declines this morning. In fact, the DJIA dipped down for a test of 12,000 following the release of weaker-than-expected US manufacturing data, but since this is a psychologically important support level, the stock index may have difficulty making it much lower today. Taking a look at the US data, the June reading of the Philadelphia Fed’s manufacturing index unexpectedly fell to a reading of -17.1 from -15.6, marking the seventh consecutive month of contraction in the sector. A breakdown of the index shows an unsurprising surge in the prices paid component, as raw material costs skyrocket. However, like the Empire Manufacturing report we saw last week, producers appear to be having trouble passing on costs to customers as the prices received component actually slipped. Meanwhile, the indexes measuring new orders and shipments both fell negative as well, suggesting that demand remains tepid, while a decline in the employment gauge does not bode well for June unemployment and non-farm payroll reports.

In the meantime, contestant number 2 continues to scalp EUR/USD aggressively, as he ended Wednesday with a portfolio balance of $242,840.56. However, this trader may want to consider getting some more sleep as his execution of 95 trades in EUR/USD only netted him $4,500 yesterday, compared to $28,000 on Tuesday. Contestant number 3, on the other hand, appears to be taking a more moderate approach. This has obviously worked in his favor as he ended Wednesday with a portfolio balance of $237,820.55, with the majority of his recent profits in an open GBP/USD position that is currently up over $30,000.

Contestant number 3 bought the pair on Wednesday morning near 1.9550, but since then, GBP/USD has surged higher thanks to incredibly strong UK consumer spending numbers, which were released at 4:30 EDT. Retail sales surged 3.5% during the month of May – the sharpest rise since record-keeping began in January 1986 – while the annualized measured jumped 8.1%, thanks to a pickup in sales of seasonal food and clothing. The news helped to offset speculation that the Bank of England would leave rates steady throughout the year, as they would try to allow a UK economic slowdown to quell rising price pressures. However, with consumption apparently still resilient, the Bank of England will see this as yet another upside risk for inflation and the Monetary Policy Committee will be more likely to consider hiking rates in the near-term.

Contestant number 3 also entered a small USD/CAD position this morning following the 7:00 EDT release of Canadian CPI. USD/CAD tumbled more than 75 pips on the inflation numbers, so this trader is clearly looking for a continuation of the move as he sold the pair near 1.0125. Canadian CPI jumped 1.0% in May – the biggest gain since January 1991 – bringing the annualized rate to 2.2%, with the surge due primarily to record high energy prices. In fact, the Bank of Canada’s core CPI measure – which excludes food and energy – remained unchanged at 1.5%. Nevertheless, the strong headline CPI figures serve as a reminder of the Bank of Canada’s surprise decision to leave rates steady at 3.00 percent on June 10, when they called rates “appropriately accommodative”. Furthermore, the Bank’s tone turned increasingly hawkish as they said, “the balance of risks to the Bank's April projection for inflation in Canada has shifted slightly to the upside,” and if “current levels of energy prices persist, total CPI inflation will rise above 3 percent later this year.” Clearly, the Bank of Canada’s inflation concerns are well warranted, and as a central bank that has changed the course of monetary policy rather quickly in the past, there is some potential that they will consider a rate hike later in the year.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

Frontrunner's Lead Hinges Upon USD/JPY - Will It Break Higher?

The currency trading portion of the contest is getting very exciting, as our leader has held the top spot for nine consecutive days. However, another contestant is right on his tails, as he holds the other two portfolios in the top three and trails the leader by less than $6,000. It’s anyone’s game…

For the ninth day in a row, contestant number 1 has been on top as he has made over $170,000 since the start of the currency trading portion of the contest and ended Thursday with a portfolio balance of $270,401.36. He has been patiently holding on to a few long USD/JPY positions that he entered last week near 107.00, but given the broad consolidations we’ve seen in the forex markets over the past week, the pair has done nothing but range trade. Our leader had better hope his USD/JPY breakout to the upside comes soon, as the contestant with the second and third largest portfolio balances is right on his tails.

Indeed, the same contestant has two portfolios in the top 3, amounting to $264,960.09 and $263,470.86, though he is essentially making the same trades in both. Since the start of the contest, he has traded a wide variety of currency pairs, including EUR/USD, EUR/GBP, AUD/NZD, and GBP/CHF. However, it was a single long GBP/USD position that propelled him higher in the ranks, as he made over $45,000 on this trade.

Contestant number 2/3 bought GBP/USD on Tuesday morning just above 1.9500, a few hours after the release of Bank of England Governor Mervyn King’s letter to Chancellor of the Exchequer. Despite the fact that UK CPI rocketed to a fresh 16-year high, the British pound plunged across the board as Mr. King said that the path of future monetary policy was uncertain, suggesting that the jump in inflation pressures would not be enough to force the BOE to hike rates. Nevertheless, GBP/USD quickly recovered on Wednesday and Thursday as the minutes from the BOE’s June policy meeting revealed that some Monetary Policy Committee members considered increasing rates earlier this month, and as UK retail sales unexpectedly improved by the most since record-keeping began in January 1986.

Also noteworthy was the contestant with the largest percentage gain, as this trader’s portfolio made just over 36% in a single day. He did this primarily with a long GBP/CHF position he entered on Wednesday night and closed out on Thursday afternoon, netting him over $30,000. Like GBP/USD, GBP/CHF rocketed higher on bullish UK releases. However, it’s a good thing this trader got out of his GBP/CHF position when he did, as the pair has done nothing but plunge lower this morning thanks to surprisingly strong Swiss inflation figures. Indeed, Swiss producer and import price growth unexpectedly accelerated, suggesting that businesses will start to pass these increased costs onto consumers, which could lead Swiss CPI figures higher. The Swiss National Bank left rates steady at 2.75% on Thursday as they viewed inflation as being “transitory,” but if price pressures continue to mount, the SNB could switch to a more hawkish tone when they meet in Q3.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

Leaders Losing Steam Amidst Choppy Trading Conditions

The trader with the first and second largest currency trading portfolio balances moved up the ranks on Friday for one simple reason: he just didn’t lose money. The leader has made over $160,000 in each of his portfolios since the start of the contest by trading primarily the British pound and the euro. On Friday, he tried his hand at USD/CAD, as he sold the pair in the morning after it rebounded to a high of 1.0190, but exited the position this morning with very small profits.

Indeed, USD/CAD jumped on Friday despite the fact that headline Canadian retail sales rose in line with expectations by 0.6 percent on the back of gasoline station and clothing purchases. Meanwhile, excluding autos, retail sales rocketed 1.1 percent higher, marking the biggest gain in five months. It is worth noting that these indexes are not adjusted for inflation, so the surge in gasoline prices during the survey period was likely a major driver of the rise in gas station sales. Nevertheless, the broad rise in most of the components (only auto and building supply sales fell) bodes well for domestic demand, as consumption appears to be holding up well. Furthermore, with the Bank of Canada becoming increasingly concerned about rising price pressures, indications of an improvement in spending will be a sign of additional upside inflation risks. As a result, there is greater potential that the central bank will consider raising rates this year.

Meanwhile, our third place contestant’s profits of over $155,000 since the start of the contest are nothing to scoff at, but his strategy of scalping EUR/USD didn’t work so well on Friday as he lost approximately $900 on a total of 52 different trades. However, it appears that he’s trying a more slow-and-steady approach. At the time of writing, he has only executed 3 EUR/USD trades as the pair consolidates below 1.55 after plunging over the course of the European trading session.

In fact, EUR/USD is down well over 100 pips from Friday’s close as weaker-than-expected European economic indicators weighed the pair down. More specifically, the German IFO survey reflected more pessimistic sentiment amongst businesses while the purchasing managers’ index for the Euro-zone services sector fell below 50, signaling a contraction in business activity. Clearly, rocketing energy and food prices along with the prospect of rate hike by the European Central Bank next month is taking a toll on businesses and consumers alike, and as a result, the downside risks for expansion in the Euro-zone are quickly mounting.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

So while we recommend always using a protective stop when in a trade, identifying that stop level can be a daunting task for new traders. One thing we do not recommend is using a fixed amount to risk on each of your trades. An example would be risking 25 pips on every trade, no matter what pair you are trading. The reason we don’t recommend this is that the daily range of two currency pairs can be very different. The daily range of the USD/JPY over the last couple of weeks has been about 106 pips. That means the high and low of the day are about 106 pips apart. However, the daily range of the GBP/JPY over the same period has been about 201 pips. So using the same arbitrary number of pips to risk in both pairs may mean a profitable trade in one pair and a losing trade in another. We recommend the use of support and resistance to determine you initial protective stop placement. If you buy on a bounce off of support, place your stop below that support level. If you sell on a bounce off of resistance, place your stop above that resistance level. This way your risk level is automatically adjusted to the volatility of the market you are trading. If you are using a 1:2 risk:reward ratio where you look for twice your risk in potential profit. Your risk and reward are now both adjusted to the pair you are trading. This will keep you in more trades which increases your chance of success.

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EUR/USD, USD/JPY Remain The Most Popular Among Traders

The trading of the leaders in the top 3 is fairly consistent with that of the majority of contestants in the currency portion of the contest, as they have primarily entered EUR/USD and USD/JPY positions, which are by far the most popular pairs in the contest. However, they’ve been able to get ahead by catching big moves in the respective pairs by patiently keeping an eye on technical levels and the release of economic indicators.

The contestant with the largest portfolio balance made more than $29,000 on a single trade and ended Monday with $291,396.17. How did it do it? He sold EUR/USD last Friday as the pair tested 1.5650 and closed the position on Monday morning near 1.5500. Indeed, EUR/USD was hit hard on Monday by weaker-than-expected European economic indicators (see Monday’s Currencies Update for more). Contestant number 1 followed this up by flipping the pair a few times overnight, and successfully managed to avoid this morning’s event risk that has sent EUR/USD rocketing higher.

US consumer confidence, as measured by the Conference Board, fell to a fresh 16-year low of 50.4 in June from 58.1. The news was much worse than expected, as the index was forecasted to slump to 56.0. A breakdown of the report shows sentiment on the present situation, future, and labor markets turned increasingly pessimistic. These indexes have shown a consistent deterioration since December, and with the US unemployment rate rising steadily along with record high energy and food prices, consumer confidence is likely to slump further, boding ill for consumption growth in the US. This news is particularly market-moving because we have the Federal Reserve’s rate decision scheduled for release on Wednesday afternoon. The Fed is widely expected to leave rates steady at 2.00%, but because of the significant upside risks for inflation and hawkish rhetoric from various FOMC members, the markets were pricing in a small chance of a rate increase. However, given the dismal status of the US consumer and economy in general, the Fed has very little room for error and will likely keep rates unchanged for as long as possible.

Meanwhile, contestant number 2 – who ended Monday with a balance of $266,292.87 – has been in and out of the top 3 as he has built up his portfolio balance high enough to keep him competitive. However, he hasn’t made any decisive moves for quite some time, as his only open trades are long USD/JPY positions he entered in June 11 just below 107.00. USD/JPY has done nothing but consolidate between 107.00 and 108.50 since then, but contestant number 2 appears to be looking for a break higher. He is unlikely to get that sort of move today as the pair has tumbled on the back of the disappointing US consumer confidence data.

Like contestant number 2, contestant number 3 hasn’t done much recently as his balance was built up enough earlier in the contest to keep him high in the rankings. Nevertheless, this trader’s closing balance of $265,351.95 on Monday is nothing to scoff at. Contestant number 3 may not be able to hold his place for much longer though, as his long EUR/CHF entry this morning is going against him.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

Traders Avoid US Dollar Ahead of FOMC Rate Decision

It appears that the traders in the top 3 are generally avoiding the US dollar ahead of the Federal Reserve’s rate decision at 14:15 EDT this afternoon, as the news is sure to spark significant volatility not only in the greenback, but also the Treasury and US stock markets. In fact, the only trader who focused on the US dollar on Tuesday – contestant number 1 - did nothing but lose money.

Contestant number 1 has had a tough run with EUR/USD, and while he managed to hold onto the top spot with a portfolio balance of $277,639.17 by Tuesday’s close, he actually lost money. In fact, contestant number 1 has made multiple attempts to short EUR/USD over the past 24 hours, but broad US dollar weakness ahead of this afternoon’s Federal Reserve rate decision has consistently led him to either close his positions or get stopped out.

The Federal Open Market Committee (FOMC) is widely expected to leave rates steady at 2.00%, but fed fund futures are pricing in a 56% chance of a 25 basis point rate hike by September. Indeed, indications of rising price pressures in the US have led various FOMC members, including Chairman Ben Bernanke, to issue hawkish commentary that has suggested some potential for a rate increase. Assuming the FOMC leaves rates unchanged as expected, the markets will be paying the most attention to the release of the policy statement following rate announcement at 14:15 EDT, as they will be scouring the text to see if the Committee still signals that tighter monetary policy may be needed this year. If this is indeed the case, the US dollar could rally this afternoon.

Meanwhile, contestant number 2 has traded a large variety of currency pairs, which obviously works for him as made nearly $30,000 on Tuesday to end the day with a balance of $273,803.60. The pairs he chose are certainly not the most popular in the contest, as he executed trades in USD/CHF, GBP/CHF, EUR/CHF, EUR/JPY and CHF/JPY. Since most of these currency pairs are carry trades, in which a trader buys a higher-yielding currency (e.g. GBP at 5.00%) against a lower-yielding currency (e.g. CHF at 2.75%) to benefit from the yield differential (e.g. 2.25%), they tend to see quite a bit of intra-day volatility. However, we’ve also seen that this pairs have been consolidating within tight ranges, providing the optimal environment for short-term traders.

Like contestant number 2, contestant number 3 got ahead on Tuesday and finished with a portfolio balance of $268,406.22 thanks to profits on EUR/CHF. However, he may not find himself in the top 3 after Wednesday’s close, as he is currently holding a short AUD/NZD position that he entered near 1.2600. The pair has been in a relentless uptrend since late March and is still climbing today, as conditions in the Australian economy are far more robust than that of New Zealand. Furthermore, the Reserve Bank of Australia has continued to issue hawkish commentary, while the Reserve Bank of New Zealand has actually signaled that a rate cut may be on the way in Q3.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

US Dollar Volatility Catapults Contestant to Top Spot

Our scalper is back in a big way, as he jumped to the top spot and finished Wednesday with a currency portfolio balance of $315,651.11. In fact, this contestant made almost $61,000 in a single day on a total of 88 EUR/USD trades. Volatility in the pair was high yesterday as the Federal Reserve announced their rate decision in the afternoon. As expected, the Federal Open Market Committee (FOMC) left rates steady at 2.00% in a 9-1 vote, as Dallas Fed President Fisher dissented in favor of a rate hike. Furthermore, the FOMC’s policy statement said that downside risks to growth had "diminished somewhat" while the "upside risks to inflation and inflation expectations have increased." However, the US dollar actually weakened on the release of the statement, as it failed to signal an imminent rate increase. Meanwhile, this morning’s bullish US Q1 GDP revisions to 1.0% from 0.9% and stronger-than-expected existing home sales data has done little to boost the greenback, as the currency appears to be in true bear-market form.

Fortunately for contestant number 2, he closed out his long USD/JPY positions before any of this happened, reaping a net profit of over $18,000 and ending Wednesday with a portfolio balance of $292,873.84. He had been holding this position for two weeks, looking for a break to the upside. However, US stock markets like the DJIA – which hold a correlation with the Japanese yen crosses – took a heavy hit on Thursday morning as Goldman Sachs downgraded Citigroup and General Motors shares, and also downgraded the entire US brokerage sector from “attractive” to “neutral.” This news has only served to exacerbate the market’s bearish sentiment on the financial sector and has stirred fears that the worst for the credit markets has yet to come. As a result, this creates additional downside risks for the US stock markets, and thus, Japanese yen crosses like USD/JPY.

Contestant number 3 isn’t even bothering with the US dollar, as he is focusing on AUD/NZD. Unfortunately, he is currently floating a loss with the pair as he entered a short position near 1.2600 (at the time of writing, AUD/NZD was trading above 1.2650). Nevertheless, prior gains have helped him accumulate over $160,000 in profits since the start of the contest, and as a result, he has managed to stay in the top 3. Looking at AUD/NZD, the pair has been in a relentless uptrend since late March and is still climbing today, as conditions in the Australian economy are far more robust than that of New Zealand. Furthermore, the Reserve Bank of Australia has continued to issue hawkish commentary, while the Reserve Bank of New Zealand has actually signaled that a rate cut may be on the way in Q3. Event risk for the New Zealand dollar will pick up this evening, as Q1 GDP will be released at 18:45 EDT. Expansion in New Zealand is anticipated to contract for the first time in just over two years, as GDP is expected to fall 0.3 percent and drag the annualized figure down to 2.1 percent from 3.7 percent. The culprit? Record high interest rates. The Reserve Bank of New Zealand has left rates at a restrictive 8.25 percent since last summer in an attempt to fight rocketing inflation pressures in the economy. Indeed, a decline in GDP is essentially the intended result of these monetary policy actions, as weaker expansion will weigh on inflation pressures, and the news will likely lead the markets to continue speculating that the RBNZ will cut rates in Q3.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

US Dollar Weakness Throws Leaders For A Loop

Contestant number 1 continued to hold on to his top spot with a portfolio balance of $320,971.11 on Thursday, as he aggressively traded EUR/USD. In fact, currency traders in the contest made the most by trading this pair on Thursday, followed by EUR/JPY and GBP/JPY. However, contestant number 1 only made $5,320 on a total of 63 trades, down from nearly $61,000 in profits on Wednesday. Indeed, US dollar price action was volatile across the majors as the currency fell despite improvements in US economic data. With risk aversion appearing to make a comeback in the markets, the US dollar is at a major disadvantage when this sort of sentiment takes hold. Furthermore, given the sharp moves we saw across the majors on Thursday, most currency pairs will likely consolidate over the course of Friday. For example, the US dollar strengthened only marginally this morning despite a 1.9% surge in personal income and 0.8% jump in personal spending. The former got a boost as consumers received their cash rebate checks, but their purchases were directed more towards staple products like food and gasoline, suggesting Americans are feeling the squeeze of higher prices and will cut back spending on discretionary products in the future.

Meanwhile, contestant number 2 held on to his spot as well, ending Thursday with a balance of $282,161.42 as he made nearly $12,000 in net profits on two long EUR/JPY trades. Contestant number 2 managed to exit these positions before the pair tumbled on Thursday afternoon, and now, he is taking the other side of the trade by shorting a different Japanese yen cross: AUD/JPY. Due the high yield associated with the Australian dollar (7.25%), this pair is prone to a significant amount of volatility and as a result, is a risky trade whether you are buying or selling it. Contestant number 2 sold AUD/JPY early this morning near 102.50 and appears to be looking for a continuation of the pair’s sharp 150+ pip drop on Thursday. However, given the extent of that move, contestant number 2’s balance may be little changed by Friday’s close, as the pair may simply consolidate above support at 102.00 for the rest of the day.

Likewise, contestant number 3 has gone on to trade the Japanese yen crosses, primarily using EUR/JPY. He ended Thursday with a balance of $274,703.66, as his short EUR/JPY trades allowed him to catch yesterday afternoon’s entire drop. As a result of this trade, contestant number 3 netted nearly $5,000. However, he is currently holding on to two losing positions: short GBP/USD and long USD/JPY. Indeed, with the US dollar remaining weak across the majors, his floating losses could weigh on his overall portfolio balance by tonight’s close and leave the door open for other traders to enter the top 3.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

US Dollar, Yen Crosses Still Popular Amongst Leaders

The EUR/USD was the trade of the day last Friday as the currency pair was the frequently traded in the contest AND the most profitable for our contestants. Furthermore, EUR/USD is the preferred pair for the leader in the currency portion of the contest, as he has made nearly $120,000 via scalping – a trading strategy in which one executes short-term positions (possibly as short as 60 seconds) and collects extremely small gains. The key, however, is doing this multiple times so that the strategy becomes profitable. In contestant number 1’s case, he executes as few as 20 to over 100 positions during any given trading session, which is how he has gotten so far ahead in the contest. In fact, contestant number 1 has been able to hold into the lead even though he ended Friday down almost $1,500, as his currency portfolio balance is still ahead nearly $20,000 more than contestant number 2’s.

However, contestant number 2 is certainly racking up gains rather quickly, as he made over $10,000 on Friday to end the day with a currency portfolio balance of $289,310.55. His strategy: the Japanese yen crosses. More specifically, he has profited the most on EUR/JPY, which was the third most profitable pair on Friday, and AUD/JPY. The majority of the Japanese yen pairs have experienced a surge in volatility as the stock markets experienced massive sell-offs last week. Since equity indexes like the DJIA and the yen crosses are both considered to be “risky” assets, they tend to exhibit a solid correlation. Lately, credit market concerns and fears of additional multi-billion dollar write-downs by financial institutions has taken a hefty toll on shares around the world, which has only helped contribute to the wild price action in pairs like USD/JPY and EUR/JPY. Apparently, contestant number 2 is looking for additional declines in the DJIA and the Japanese yen crosses, as he is holding on to two short AUD/JPY positions (both of which are floating profits). However, the Australian dollar faces event risk overnight as the Reserve Bank of Australia (RBA) is scheduled to announce their next rate decision at 00:30 EDT. The RBA is widely expected to leave rates steady at 7.25%, but if RBA Governor Glenn Stevens issues hawkish commentary in his subsequent policy statement, the Australian dollar could see, at the very least, a brief rally. On the other hand, commentary that focuses more on the downside risks to growth and tightening credit conditions could weigh heavily on the currency, as the markets will cut back expectations that the RBA will consider raising rates in order to fight inflation.

Finally, contestant number 3 finished Friday with a balance of $260,224.18. However, he is still holding on to two losing positions: short GBP/USD and long USD/JPY. Indeed, he has been holding on to these pairs since last Thursday, so the US dollar will have to make a serious comeback over the course of the day before contestant number 3 will be able to recoup his losses. Furthermore, with Tuesday’s release of ISM Manufacturing expected to show that business activity in the US sector contracted for the fifth consecutive month, US dollar strength may be limited in the near-term.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com

One of the biggest problems new traders make is to take quick profits on a trade because they fear that the market will move against them and they will end up with a losing trade. A common statement in the trading world is, “Ringing the cash register is not a bad thing”. This means getting out of a trade when it is showing a profit is a winning strategy. If that is the case, then how come we see many new traders winning most of their trades and still losing money? It is more common than you might think. The problem of course is money management. This is what makes professional traders consistently profitable. They call it working a trade and it means having the patience and discipline not to take quick profits on a trade as soon as the market starts moving against your position. We would all love to enter into a trade, have about 60 seconds of anxiety and then just pure joy as the market keeps moving in our direction into big profits without a worry. Unfortunately, that is not real trading. Real trading involves planning your trade before you enter and then trading you plan. We need to think about using at least a 1:2 risk:reward ratio every time we are in a trade. If we risk 50 pips, we need to look for at least 100 pips in profit. That way if we win half of our trades, we are profitable. Sound easy? It is probably the most difficult key to successful trading and takes practice and confidence. But this is what trading is all about.

Hi Thomas,
You are absolutely correct as I am also suffering from this syndrome but now slowly recovering after loosing a lot in last two years. Actually new trader is bound to make such silly mistakes when they are trading live and position turns against them or they are in profit. They will be quick to take small profit but will wait to extend their losses until margin calls received and then loose money. Now I am very careful and in last two months have made very handsome returns. Any suggestions how to come over this stigma. Taa

My recommendation is to plan your trade before entry and then to let it go. We can do that by first identifying our entry and then our risk. Our risk is obviously the difference between our entry price and our initial protective stop level. If that risk is 50 pips, then I recommend setting a limit order to take profit at 100 pips above our entry. That represents a 1:2 risk:reward ratio and means we only have to win 40% of our trades to be profitable. I also recommend placing a trailing stop order of 50 pips (the same as our risk) with our entry. This would move our stop up to breakeven if/when the market moves up halfway to our target. We wouldn't want to see the market move up to just under our target and then move back to stop us out with a loss. This way if the market moves halfway to our target, our stop is moved up to our entry level and in a normal market environment, we can only breakeven or win. That is a good position to be in. When trading at FXCM, these orders can all be put in at once, so you can place them and then turn the computer off as your decisions have already been made before you were in the market. This keeps emotions out of your decision making process which is key for long-term success.

US Manufacturing Data Contributes To Choppy Price Action

As of yesterday’s close, the EUR/USD remains the most frequently traded pair in the contest AND the most profitable for our contestants. The pair has experienced very choppy price action this morning, testing resistance at 1.5800, as German data showed that retail sales and labor market conditions in the Euro-zone’s largest economy remain robust. However, EUR/USD was subsequently pulled lower at the start of the US trading session as the Institute for Supply Management's (ISM) index of conditions in the manufacturing sector in June unexpectedly rose above 50 - indicating expansion - for the first time in five months to 50.2 from 49.6. A breakdown of the report reflects a surge in the prices paid component, which hit a 34-year high of 91.5 from 87.0, as rocketing commodity prices boost input costs. Meanwhile, the employment component slipped down to 43.7 from 45.5, marking the eighth consecutive month that manufacturers have let workers go. This does not bode well for this Thursday's US non-farm payrolls report, as layoffs in this sector will weigh on the overall index.

EUR/USD is also the preferred pair for the leader in the currency portion of the contest (read Monday’s Currency Update for more on his strategy). Contestant number 1 has made over $120,000 since the start of the contest and finished yesterday with a currency portfolio balance of $321,671.11. While his profits of $2,140 were relatively small on Monday, he has been able to hold onto the lead as his currency portfolio balance is still ahead more than $25,000 more than contestant number 2’s.

Nevertheless, contestant number 2’s portfolio balance is nothing to scoff at, as it amounted to $293,224.93 as of Monday’s close. This contestant is still trying his luck with carry trades, which are currency pairs that consist of a high-yielding currency versus a low-yielding currency. In conditions in the market are fairly stable and risky assets are appreciating, carry trades tend to appreciate. However, when sentiment in the markets becomes more risk averse – as they have been lately – carry trades tend to pull back sharply. Contestant number 2 is clearly looking for a continuation of this trend as he is holding on to two short AUD/JPY positions (both of which are floating profits). The pair remains heavy as the Reserve Bank of Australia (RBA) left rates steady at 7.25% last night while RBA Governor Glenn Stevens noted that tighter financial conditions and rising fuel costs were “working to restrain demand,” suggesting that additional rate hikes will not be necessary this year.

Contestant number 3 has had a rough run with EUR/USD and GBP/USD lately, as he actually lost money on Monday. Regardless, he still finished the day in the top 3 with a portfolio balance of $266,102.34. Looking ahead, heavy event risk on both the European and US sides of the coin should provide some volatility for the euro and US dollar, as the ECB rate decision and US non-farm payrolls will both hit the wires on Thursday.

Congratulations to our top traders and good luck!

Terri Belkas, Currency Analyst for DailyFX.com