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Risk FX Tumbles as US GDP Revised Lower

Last updated 12/22/2011 9:12 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

Risk FX tumbled lower in early North American dealing after US GDP data for Q3 was revised lower to 1.8% from 2.0% initially forecast. The primary reason for the downward revision was the sharp decline in personal consumption expenditure which accounts for 70% of the US economy. Economists had projected an increase of 2.3% while actual figure came in at 1.7%.

The tepid pace of PCE indicates that the US consumer remains exceedingly cautious  in his spending habits given the challenging employment conditions  and the  moribund state of the housing market. Analysts expect that Q4 of this year will show an improvement in consumption to 3% as labor conditions ease. Indeed today’s weekly jobless claims printed at 364K versus 368K a week ago - the third consecutive time that they have been markedly better than expected.

Still, it remains unclear if consumers will dramatically increase their pace of spending in Q4 of this year. One unexpected factor that could depress sales has been the unusually warm weather in  Northeastern US which has forced retailers to discount merchandise prematurely.

Risk currencies fell in the wake of the surprisingly weak  GDP with EUR/USD hitting a session low at 1.3020. But the pair has stabilized as equity prices rebounded. As we noted earlier, “With market headed into pre-holiday trade, the price action may be subdued, but risk FX remains vulnerable to further selloff and if equities turn negative EUR/USD could test 1.3000 as the day progresses.”   

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.