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U.S. Confidence and Fed Speeches

Last updated 11/10/2009 10:16 AM ET (GMT -5) 2 Comments

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Kathy Lien

Director of Currency Research, GFT

After Monday's aggressive sell-off, the U.S. dollar recovered a small and barely significant portion of yesterday's losses.  This lack of volatility is not surprising considering that the economic calendar is relatively quiet with only the IBD/TIPP Economic Optimism index due for release today. However 5 Fed officials will be speaking with a number of them talking specifically about the economic outlook which could affect the markets.

Forecasting Confidence

According to the Investors Business Daily / TechnoMetrica Market Intelligence index of Economic Optimism, sentiment deteriorated in the month of November. Since the beginning of the year, the IBD index has had a greater than 85 percent correlation with the University of Michigan consumer confidence survey as indicated by the chart below.  This suggests that we could also see deterioration in the more widely watched UMich index.

Source: FX360.com

Fed Officials Express Continued Concern

This morning, Federal Reserve President Lockhart sounded downbeat when he expressed his concern about the commercial real estate sector.  Although the economy is supported by government programs, he still believes that growth will be subdued and that there will be very slow net job gains sometime in 2010.  With that in mind however, sales are beginning to pickup and prices are beginning to bottom but the Southeast part of the U.S. will probably lag the national recovery.

Fed President Yellen echoed the same sentiment, calling the CMBS market "deeply distressed." She also indicated that the Fed must provide accommodation to spur jobs which helps to explain why the central bank left the FOMC statement virtually unchanged.  The commercial real estate sector is still very vulnerable and could provide another shock to the U.S. economy.  Although Yellen believes that an expansion is underway, she compares it to previous jobless recoveries and questions the durability and strength of the expansion.  For the time being, the prospects of consumer spending are cloudy because she believes that unemployment could stay high for "years to come."

In addition to Lockhart and Yellen, Fed President Rosenberg is scheduled to speak in London at 11:15am ET followed by Tarullo at 3:30pm ET and Fisher at 7:30pm ET. 

Earlier this morning, a U.S. Treasury official reiterated the G20's pledge to maintain stimulus until growth is sustained which is critical to cutting unemployment.  He also admitted that Asia is the key to boosting the global recovery and therefore the U.S. favors more currency flexibility from China and attempts to boost domestic consumption.  These comments come ahead of Geithner's participation in the APEC News Conference in Singapore and his talks with Japanese policymakers. Although Treasury Secretary Geithner has stopped short of repeating the U.S.' strong dollar policy, Finance Minister Fujii said this morning that this is indeed what the U.S. wants after the meeting with his U.S. counterpart.

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Comments (2)

GMattyJ

November 10, 2009 at 11:06 AM ET

Interesting Read - Thanks for the article!!

Wanna Be

November 10, 2009 at 11:31 AM ET

I don't think anyone of these "people" know what they want. They seem to be just as clueless as everyone else.

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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.