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November 11th, 2012 at 10:55 am

Currency Funds Less than Impressive in 2012.

For all the talk and bold claims about what kind returns are possible trading currencies, the truth is less glamorous, even sobering. The recent report by Parker Global, a company that tracks the performance of currency funds, reveals less than impressive results. Its Currency-Managers Index is almost flat for 2012 to date, showing only a small gain of 0.14%. For October, the index declined by 0.7%, but even if we exclude this month, the returns are dismal for the group as a whole.

While the Parker’s CMI covers only a small fraction of the Forex trading universe, it appears to be a statistically valid sample. Another similar tool is the Barclay Currency Trading Index, which covers 108 funds/programs. This index has appreciated only 0.82% so far this year, roughly the same abysmal results of the Parker’s CMI. Interestingly, this is more or less, what an average bank account delivers. With only few weeks left, there is virtually no chance, for these indices to show any meaningful improvement.

This brings up a valid question – are currency markets beatable? If hedge funds and their army of quants are just churning money, can individual trader do better? The simple answer is yes, although it is not easy. It takes time and discipline, but eventually returns exceeding those mentioned above are possible. After all, what is point of pursuing this activity if a basic bank account can do better? Frankly, after 2-3 years of trading, a dedicated individual should handily beat the so-called “experts”, especially if this record of miserable returns of past 10 years continues.

In the last post, I discussed the recent pullback in JPY pairs. It remains to be seen if the strength of the Japanese Yen is only a technical correction or perhaps a major reversal. I want to use the AUD-JPY to determine that. Its 4H chart reveals a well-defined new support level, which could be a pivot point for the next major price swing. A breakout below this level would put the AUD-JPY in a downtrend and become a solid proxy for all Yen crosses. For now, I do not have a sell order just yet, because I would like to see a little bigger rebound first. Besides, Japanese GDP is set for release later today and with the calendar otherwise empty, it could be the news of the day. Do not want to be caught in some reactionary whip. Still, the 81.90 area is the level to watch and most likely sell the AUD-JPY looking for 100 pips.

One more Aussie pair where on my list for a potential trade is the AUD-CHF. After a strong rally, this pair is ranging now in a relatively narrow band. If this continues, a bullish continuation is the most likely income. However, the price could also be in early stages of a rounded top, which means reversal. At any rate, eventually we will have a move either way, worth at least 50-60 pips, probably sometime this week. In other words, this is a good straddle situation. As always, opening gaps are possible, even if absent of late. Have a great trading week!

Mike K.

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