Monday, April 1, 2013

FX Frenzy: Aussie Dollar Bears Head to Regional Championships

In the latest round of DJ FX Frenzy, the April fool�s joke was on anyone who bet against Ric Spooner, chief market analyst of CMC Markets in Sydney.

His contrarian bet of buying yen against the dollar last week proved to be that week�s biggest percentage winner in the five-week DJ FX Frenzy tournament. Now halfway through, the bracket-style tournament asks a pool of currency traders and strategists to pit their foreign exchange trade ideas against each other in head-to-head matchups.

The competition is now down to six entrants from the original 24, and is one round away from establishing who will go forward to the bracket�s global semi-finals. If there is a theme to this week�s picks, it would be a decidedly negative view of the Australian dollar, with half of the entrants predicting the currency will weaken. That could be interesting: Aussie bears have struggled in recent years as the currency has defied concerns about the country�s exposure to China and continued to trade above parity with its U.S. counterpart.

More In FX Frenzy
  • FX Frenzy: Da Yen Bears Are Back
  • FX Frenzy: In Forex, As In Sports, Results Are Unpredictable
  • FX Frenzy: Trends Do a Disappearing Act
  • Currency Traders Compete in FX Frenzy

Facing Mr. Spooner in this round will be Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong. Ms. Trinh won her bracket with her bet that the Canadian dollar would outperform the U.S. dollar last week, giving her the second best return globally in last week�s head-to-head match ups.

This week both Team Spooner and Team Trinh are betting against the Aussie dollar, in favor of the Swiss franc and the Canadian dollar, respectively.

The buy-yen trade was also kind to Carl Hammer, chief currency strategist of SEB in Stockholm, in Round 2. His idea to buy yen against the Hungarian forint proved the third best trade of the week and leaves him matched up against Michael Hewson, who like Mr. Spooner works for CMC Markets, in his case as a senior market analyst in London. Mr. Hammer is another Aussie dollar bear, having sold the Australian currency against the Canadian dollar in the European regional championship this week. For his part, Mr. Hewson is sticking with a positive bet on the British pound versus the dollar.

Meanwhile Jennifer Elvidge, emerging markets trader at Standard Charter bank in New York, saw her Round 2 trade idea deliver the best performance in the Americas grouping: a sell-Thai baht, buy-Korean won trade that gained 0.5%. Her choice for a matchup this week against Dan Dorrow, head of research at Faros Trading in Stamford, Conn., is to buy the Japanese yen against the Korean won. That�s a pick that could face some volatility, as this week could see the Bank of Japan announce important new monetary policy measures and a further buildup in the tensions between North and South Korea. Mr. Dorrow is taking an opposite view on the yen, albeit within a different pair. He is calling for the Japanese currency to fall versus the dollar.

Below are all the contenders for the regional championships for the week ending April 5th:

Asia-Pacific

  • Ric Spooner, chief market analyst, CMC Markets in Sydney: Team Spooner emerged the top performer globally in Round 2, with his sell-dollar, buy-Japanese yen trade idea returning 0.8% in the week ended March 29. He benefitted from continued market jitters surrounding the Cyprus crisis, as well as a general pullback in recent dollar strength against the yen. For the Asia-Pacific regional championship, his trade idea is a sell-Australian dollar, buy Swiss franc, where he sees a short-term downtrend that could be assisted by weaker commodity prices.
  • Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong: Trinh overall had the second-best performing trade idea globally. Her sell-U.S. dollar, buy-Canadian dollar trade returned 0.65% last week. She’s holding onto her view that the Canadian dollar will gain. For this coming week, she likes selling the Australian dollar against the Canadian dollar, with a target of CAD1.04 � down from a current level at 1.0601. “Relative positioning trends suggest this cross is vulnerable,” she says.

Europe

  • Carl Hammer, chief currency strategist, SEB in Stockholm: Hammer was best performing trade in Europe and third globally in Round 2 with his buy-yen, sell-Hungarian forint trade idea which returned 0.6%. For his face-off with CMC Markets� Hewson, he thinks the Aussie dollar will slide against the Canadian dollar, with a take-profit level of CAD1.0250. His rationale: �This is a bet the [Australian central bank] will surprise with a more dovish statement than expected.�
  • Michael Hewson, senior market analyst, CMC Markets in London: Hewson was able to squeeze by his opponent in Round 2 with a buy-sterling, sell-dollar trade idea. While that trade idea was nearly flat on the week, he edged by as his opponent’s trade slipped farther into negative territory. For the regional Europe championship, Hewson is sticking with his bullish-U.K. pound trade idea, betting once again that it will rise against the dollar. “The short sterling trade is becoming a somewhat crowded trade and I feel that we are due a rebound” to the mid-$1.50s area, he says. The pound is currently trading around $1.5234.

Americas

  • Dan Dorrow, head of research at Faros Trading in Stamford, Conn.: Dorrow is sticking with his bet from the previous week that the dollar will strengthen against the Japanese yen. That trade left him in negative territory in Round 2, but still a winner in his match-up. Now Dorrow expects that the recent sell-off of the dollar against the yen has ended, with the help of constructive growth data in the U.S.�most critically nonfarm payrolls data on Friday. Dorrow says buy dollar against the Japanese yen with a profit target of Y96.15 versus Y93.38 currently, arguing that �a higher yield differential will drive up� the pair.
  • Jennifer Elvidge, emerging markets trader at Standard Chartered in New York: Elvidge is sticking with her Asian currency expertise, after being rewarded by her sell-baht, buy-Korean won trade in Round 2 to nab the number-one spot in the Americas in terms of returns. But this week she�s reversing her view on the Korean won, with a trade idea selling it against the Japanese yen.

To follow the DJ FX Frenzy tournament,�check out the bracket here�and follow #djfxfrenzy and�@djfxtrader�on Twitter.

(This is a financial news and information service. It is provided in general terms and does not take account of or address any individual user’s position. To the extent that this article includes suggestions as to various possible investment strategies which users might consider, it does so in only general terms without reference to the personal factors which should determine any user’s investment decisions. Nothing contained in this service constitutes personalized investment advice nor trade recommendations. Nor does anything necessarily reflect investments that the participating analysts, traders, or their institutions have made. Dow Jones does not warrant the accuracy, completeness or timeliness of the information in this article, and any errors shall not be made the basis for any claim against Dow Jones. The author does not invest in the instruments or markets cited in this article. This article does not constitute or form part of any invitation or inducement to buy or sell any security.)

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