Safe Haven Flows into USD Ease After Trade Numbers

Last updated 7/10/2009 9:03 AM EST (GMT -5) 0 Comments - Add your comment

Kathy Lien

Director of Currency Research, GFT

Although risk aversion dominated trading in the European hours, the better than expected U.S. trade figures has helped to ease the safe haven flows into the U.S. dollar. In our Daily Report yesterday, we talked about how the rally on Thursday was nothing more than a relief rally as the signs of recovery recede, but the sharp rise in exports in May were encouraging.

In the month of May, the U.S. trade balance fell from -28.8 billion to -26 billion to the smallest level in close to 10 years. In a healthy market environment, this would be overwhelming positive for the dollar because it would suggests that exports are growing at a rapid rate. However in the current market environment when global trade has contracted significantly and oil prices were increasing, traders are skeptical about how much real demand contributed to the sharp increase in exports compared to oil prices. Nonetheless, the U.S. trade numbers reflect the positive impact of the weaker dollar. Exports rose 1.6 percent, the strongest gain since July 2008. Imports decreased by 0.6 percent and even though crude oil imports fell, the average price per barrel increased $4.61 that month. Import prices in May rose 3.2 percent, the strongest increase in nearly 2 decades.

Canada on the other hand reported weaker trade numbers. The deficit increased from -0.4 billion to -1.4 billion in the month of May. This is the second month in a row that the nation, which has historically run a trade surplus has turned a deficit. The Canadian dollar strengthened significantly that month to the discomfort of the Bank of Canada. Whenever USD/CAD falls below 1.15, exporters start screaming. However trade should improve in June with USD/CAD rising from 1.08 back to 1.16.

This morning, the main focus in the currency market is on USD/CAD. In contrast to the trade numbers, the labor market report was better than expected. Although the unemployment rate increased to an 11 year high of 8.6 percent, 7,400 Canadians lost their jobs in June which was dramatically better than the market's -40k forecast. The pace of job losses continue in Canada but the degree of job losses is easing, which should be positive for the Canadian economy.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.