Q3 2012 US Forex Traders Profitability Report

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Courtesy of Forex Magnates, we present you with a copy of the Q3 2012 US Forex Traders Profitability Report:


"Despite the less than volatile Q3 2012 the number of accounts didn’t grow as expected and neither did the traders’ profitability. Apparently low volatility doesn’t necessarily mean improved traders survival.

Not only did one more US broker depart the market today but the total number of US forex traders dropped by over 2,500 while profitability almost didn’t change (+0.3% on average and -0.6% when calculating weighted average). There are still over 100,000 active US forex traders left however this number may go below the 100k mark if the trend continues into the next quarter.

CitiFX Pro is now the number one US forex broker in terms of clients’ profitability with Interactive Brokers and ILQ only slightly behind it. ILQ showed the biggest increase of the quarter when its clients’ profitability jumped by almost 10% placing it third.

Interesting to note is that with the exception of FXCM, the brokers with most profitable clients were the only ones able to grow in terms of accounts."

In terms of new accounts, ILQ grew by 19.6% - almost double that of the nearest competitor.

Forex Trading - Market Update

Commodity Currencies
The main commodity currencies (Aussie, Kiwi, and Cad) are still relatively near the highs of their respective moves against the U.S. Dollar. (View WSJ US Dollar Index) The recent moves in these commodity currencies seem to exhibit a strong degree of correlation with the equity markets. We think that if the U.S. equity markets begin to unwind and risk appetite decreases, then the commodity currencies will depreciate against the U.S. Dollar.

Negative Pressure on Equity Markets
So far this morning there has been significant pressure on European Equity Indexes (Track European Equity Indexes here)

These moves seem to be driven by economic data releases missing expectations this morning. Track economic data releases at Forex Factory

GBP: Manufacturing Production, m/m,   Actual: -1.3%,   Exp: -0.2%,   Previous: 0.0%

GBP: Industrial Production m/m,   Actual: -0.8%,   Exp: 0.9%,   Previous: -2.1%

EUR: German Industrial Production m/m,   Actual: -2.6%,    Exp:-0.4%,   Previous: -1.3%


In addition, Germany lowered their 2013 GDP forecast this morning, which immediately caused a 20+ pip drop in EUR/USD.

This downside pressure on European Equity Indexes has had a negative impact on US stock futures, and should contribute to downside pressure in the US stock indexes throughout the day. If the NFP number disappoints market participants, then the problem will be compounded and may lead to a sell off.

The Trade
If the market reaction to the NFP numbers is negative and equity markets fall, the AUD/USD currency pair should offer attractive shorting opportunities. I've sold at 1.0480, with a tight stop above 1.0515 which is yesterday's high. I like this trade because the risk/reward is excellent, as there appears to be plenty of room to the downside and I'm able to clearly define my risk.

Forex Trading - Market Update

The Wall Street Journal Dollar Index started dropping at 10:55 A.M. as Obama began talking to business leaders. He essentially said nothing new; but the wording that he used was apparently very well crafted by his advisers in an attempt to not tank the stock market. Risk popped to the upside and the S&P 500 went from being down 7 points to being up 1 point and the Dow Jones has climbed to +70.

After he finished speaking at 11:35 A.M., the WSJ dollar index immediately began climbing again (aided in part by a weak Yen) and retraced some of its losses. I think the key to trading the currencies markets from today will be to watch Equities. If the S&P 500 dips back into negative territory and starts heading towards 1400, then the Aussie and Kiwi may be attractive shorting opportunities. If the stock market continues to climb for the rest of the day, we may see a breakout to the upside of this consolidation on the NZD/USD

Royal Bank of Australia: Time for Intervention?

Early this morning the Royal Bank of Australia's Deputy Governor Lowe made a comment that was largely unnoticed by market participants. He mentioned the all-powerful " i " word. Specifically, he said that "they would not rule out intervention."

As members of the RBA watch governments around the world use rhetoric to cause their currencies to depreciate, it may be ready to do the same if economic conditions in Australia deteriorate. The RBA has repeatedly stated in their monetary policy statements that they consider the Aussie exchange rates to be higher then they should be.

If the RBA does decide to step up its rhetoric, the Aussie may fall at the same rate as the Yen has in recent history.

Royal Bank of Australia (RBA)'s Assistant Governor Debelle is scheduled to speak later today at 6:00 P.M. EST

Wall Street Journal: Aussie Bond Party Loses Its Mojo

Wall Street Journal
By Enda Curran


Is the Aussie bond party over?

That’s the question some investors down under are asking after new figures showed that foreign demand for Australia’s triple-A rated, high yielding bonds is starting to cool off, signaling that central banks and sovereign wealth funds have had their fill of the nation’s debt.

In a breakdown of third quarter balance of payments data J.P.Morgan JPM -0.66%strategist Sally Auld said net supply of Australian government bonds in the three months to Sept. 30 totaled 14.3 billion (US$15 billion), of which offshore buyers bought just 9% .

“Relative to recent outcomes, this is quite unusual,” said Ms. Auld. “While a couple of quarters may not be enough to define a trend, we would argue that this dynamic is broadly consistent with the idea that much of the new reserve allocation by offshore central banks and sovereign wealth funds into Australian dollar fixed income is now in the past,” the strategist said.

That means going forward, these buyers will be managing their existing allocations rather than looking to increase their exposure.

Foreigners now hold around 74.4% of Australia’s bonds on issue, down from a high of 79% in the first quarter of 2012, according to Ms. Auld.

J.P.Morgan says that Australia’s deteriorating fiscal position isn’t winning over many new buyers. The government in Canberra is pushing for a budget surplus this fiscal year by transforming a A$40 billion deficit into a small A$1 billion surplus but JPMorgan economists think the final outcome will be more like a A$15 billion deficit.

“This is probably a conservative estimate given downside risks to the growth outlook and lower commodity prices,” said Ms. Auld.

Still, it’s not all bad news for the sell side brokers who earn a crust by travelling the world and selling Aussie bonds to everyone from life insurers to reserve managers.

Ms. Auld notes a shrinking pool of triple-A rated sovereigns, the relatively high yields that Australia offers and ongoing buying by banks because of new prudential rules means that bonds from Down Under will remain sought after for some time, just not at record levels.

Forex Trading - Market Update

EUR/USD
The Euro has remain very well bid considering some of the bad news and economic data that has come out recently. Technically, we are at an inflection point where a move higher to 1.3100 suggest follow through with a stop run past the two swing highs and 1.3200. I think the next move is back to 1.3000, but I'm going to be very cautious playing moves to the downside because we are very clearly in an uptrend.

GBP/USD
I'm taking cues from EUR/GBP and EUR/USD. If the Euro continues to climb higher across the board (across the board being the key phrase - because it means EUR/GBP) then the GBP should climb as well; but not as quickly. On the same note, if the EUR depreciates across the board, it will drag the GBP down - but at a slower rate due to the fall in EUR/GBP. The latter scenario creates potential trades to the upside in GBP/AUD, GBP/NZD, GBP/CAD if the commodity currencies continue to slide.

USD/CAD
Theoritically, the CAD should depreciate the fastest based on concerns over the fiscal cliff. However, investors have been chasing yields in high yielding currencies (AUD, NZD) so as the Aussie and Kiwi come off those funds can go into the CAD, keeping downward pressure on USD/CAD. To try and gauge any movement in USD/CAD, I'm keeping a close eye on AUD/CAD and NZD/CAD.

NZD/USD, AUD/USD
These high yielding currencies should fall the fastest into the end of the year as long as the resolution of the fiscal cliff remains in question. The rate decisions tonight and on Wednesday will definitely have a strong impact on the currencies; but I favor playing a pop higher on a rate decision as a shorting opportunity after momentum has waned.

USD/JPY
Going long this pair is easily the most crowded trade of 2012. At this point, there has been so much market talk of hedge funds going long this pair in record numbers that I can't touch it. I won't play it to the downside because any comment out of a BOJ official can send it skyrocketing and I can't play it to the upside because it's overcrowded and worries over the fiscal cliff should send it down. I favor buying USD/JPY and perhaps CAD/JPY on a resolution of the fiscal cliff and holding for follow through. The only exception I would make to this is buying at the 0.50 fib retracement at 80.66 and using a tight stop.


Side Note: there's a Eurogroup meeting today and there may be comments out around 5:00 P.M. EST. This time has been chosen for announcements recently as there are no major markets open at this time.