Currencies Retreat in the Face of Mixed U.S. Data

Last updated 10/16/2009 10:09 AM ET (GMT -5) 10 Comments

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Kathy Lien

Director of Currency Research, GFT

The U.S. dollar is trading well off the lows that it reached during the early Asian trading session. Last night, the Euro, Australian and New Zealand dollars climbed to fresh 14 month highs against the greenback. However since then, the gains receded, leaving the dollar stronger against every major currency except for the British pound. In our daily report on Thursday, we said that "we believe that we will start to see much bigger moves in the GBP/USD& nbsp;and USD/JPY& nbsp;compared to other major currencies."

Treasury International Capital Flow Report

This morning's economic reports only had a marginal impact on the dollar. Foreign purchases of long term U.S. securities increased by $28.6B in August, but that the rise was offset by a downward revision to the prior month's report. Total purchases including long and short term securities rose by $10B. After the large drop in foreign demand in July, a rebound is normal. Investors moved their money from short to long term Treasuries, reflecting increased confidence in the outlook for the U.S. economy. France was the biggest buyer followed by HK, Japan, the U.K. and Russia. China was actually a net seller, but the amount they sold was so small that it is not meaningful. Hedge funds in the Caribbean were the biggest net sellers. Overall, the latest report indicates that investors have not been so discouraged by the dollar's weakness that they have completely stop buying dollars. However the dollar weakened more dramatically in September and October therefore it will be interesting to see if this trend continues.

Industrial Production and Consumer Confidence

Meanwhile one sector that is benefiting from the weaker dollar is manufacturing. Yesterday we saw a healthy rise in the Empire State manufacturing survey and today, industrial production rose 0.7 percent in September following an upwardly revised growth of 1.2 percent the previous month. According to the University of Michigan, Consumer Confidence pulled back this month with the index falling from 73.5 to 69.4. Given the drop in the IBD/TIPP Economic Optimism index, the drop in confidence should not be entirely surprising. Even though equities have extended their gains, job losses accelerated last month.

There is a good chance that the sell off in higher yielding currencies today will momentum, but a much deeper slide is needed to erase the overall downtrend in the dollar.

Comments (10)

Semaj

October 18, 2009 at 12:40 PM ET

I am waiting for a lower high on the 1 to 4 hour charts along with the 1 48 handle to be taken out. That should change bias for a while.

Semaj

October 18, 2009 at 05:58 PM ET

Thanks, sounds good. I'll be watching.

FXDragon

October 18, 2009 at 04:52 PM ET

I wouldnt rush to short eurusd. It should be a while before a good pullback(last week of oct. likely)

FXDragon

October 16, 2009 at 10:20 AM ET

It is likely this is afake pullback before a bigger one, i suspect.

spunky

October 16, 2009 at 04:12 PM ET

Yes, I agree, looked what happened with the Eur/Usd the last 2 days right before 11am ; } 10,000 holding on the dow with alot of earnings due out next week in DJIA

Only 8 pips today on the U of M , what lousy price action

spunky

October 17, 2009 at 10:31 AM ET

Naw, I am a scalper, and news even trader. I will stay in my little pond and take small but steady gains .

Good luck

FXDragon

October 16, 2009 at 05:37 PM ET

You can catch a big wave in the coming weeks. Good luck...

FXDragon

October 18, 2009 at 04:45 PM ET

Im a shark:) I have to make between 20-30% yr. profit not to get fired. Its a mean business.

::EX::

October 18, 2009 at 10:25 PM ET

EUR/USD broke the trend line on a H4 chart. I think so Dollar might see a day or so of straightening. This can be a correction as the trend is Bearish for Dollar. I think so if EUR/USD on H2 chart and then on a H4 chart have Moving averages EMA (10 with 90) cross then we might see a dip towards 1.4720.

::EX::

October 18, 2009 at 10:26 PM ET

EUR/USD broke the trend line on a H4 chart. I think so Dollar might see a day or so of straightening. This can be a correction as the trend is Bearish for Dollar. I think so if EUR/USD on H2 chart and then on a H4 chart have Moving averages EMA (10 with 90) cross then we might see a dip towards 1.4720.

Add Your Comment

Please login to post a comment or sign up for an FX360® account.

Loading...

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.