What Forex Traders Can be Thankful For

Last updated 11/26/2009 9:38 AM ET (GMT -5) 8 Comments

Kathy Lien

Director of Currency Research, GFT

It is turkey day in the United States and we are off enjoying Thanksgiving with our families. In the spirit of this holiday, we want to the opportunity to talk about 5 things that forex traders can be thankful for.

1. The Global Economy Has Stabilized

In the first quarter, every single G7 country experienced negative GDP growth. For example, the U.S. economy contracted by 6.4 percent, the sharpest decline in more than 25 years. However much has changed in the third quarter. Most of the major G7 nations experienced positive GDP growth which means that technically, the recession is over. The risk of a depression has faded and everyone seems to agree that the worst is behind us.

Source: FX360.com

2. Service and Manufacturing Sectors are Expanding

The most encouraging thing however is that both the manufacturing and service sectors are now expanding. Back in January, every major country’s PMI numbers were below 40 with 50 being the boom/bust line. As of November, the PMI numbers are all above 50 with IVEY PMI in Canada sitting near 12 month highs.

Source: FX360.com

Source: FX360.com

3. Consumer Spending

Consumer spending in the U.S. is slowing recovering. In 2008, retail sales fell 8 out of 12 months with spending contracting by more than 3 percent in October and December. So far in 2009, retail sales were positive 7 out of the past 10 months. Despite all of the doomsday scenarios that have been outlined by pessimists, consumer spending is holding up. It remains to be seen whether this trend can continue but for the time being, we can be thankful that U.S. consumers have not shut their wallets completely.

Source: FX360.com

4. Housing Market Still Going Strong

At the same time, thanks to incentives, existing and new home sales are still going strong. The number of units sold has gradually increased throughout the year. The housing market was one of the first sectors to crumble and its recovery is a big reason why the sentiment in America is improving. With the $8000 housing credit extended to April 30th and widened to cover homes purchased by repeat buyers, there is a good chance that the demand could remain steady into 2010.

Source: FX360.com

5. Volatility Has Eased, Helping Carry Trades and Equities Recover

Yet what we all should really be thankful for is the sharp drop in volatility since the beginning of the year. The VIX which measures the volatility of the equity market has fallen by more than 50 percent.

Source: FX360.com

This decline in volatility has helped to restore risk appetite, giving investors the confidence to jump back into the markets. As a result, U.S. stocks are up close to 20 percent….

Source: FX360.com

and carry trades such as the Australian dollar / Japanese Yen have recovered more than 20 percent since the beginning of the year.

Source: GFT DealBook 360

Comments (8)

hsbc

November 26, 2009 at 07:32 PM ET

how come arabs are rich enough to buy a football club but doesnt have money to pay their debt?

SamSydney

November 27, 2009 at 09:18 AM ET

who has money tp pay debts, you?????

Doobp

November 26, 2009 at 11:00 PM ET

dun u see the link? they borrow money to buy football club. further more they are interest-free country

Doobp

November 26, 2009 at 11:12 PM ET

Anyway, what i think there is a possibility for a double dip recession. dollar yen had broken the long term support. aussie had broken the 9months bull, japan's entering deflation, nothing seems realli great.. what u guys think?

hsbc

November 26, 2009 at 11:23 PM ET

do u base that on techinical or fundamentals? i am not v convinced abt parking my money in usd. to me on an interest rate model, aud yields 3.5% while usd yields nothing. moreover this dubai thing is about restructuring their assets, seperating the money earning one from the crap. would u classify dubai debt the same as latin american debt? i doubt it. on a credit front i still see it as a buy dip for asian names. commodity wise i think gold will rally even more

Doobp

November 27, 2009 at 12:46 AM ET

i agree. aussie, eur and kiwi remain the best bet. i"m buying the dip too. But i will want to avoid aud and kiwi till early dec.

there is a possibility for double dip recession if the asian market will trigger a downtrend. the debts are different. How huge is the exposure to the world? The leverage that banks were writing off can be ridiculous.

i'm expecting another wave of risk adversion at NY half-day market

hsbc

November 27, 2009 at 02:45 AM ET

these dubai guys are a joke. on the eve of thanksgiving

jojoba

November 29, 2009 at 12:06 AM ET

Major market fundamentals are really looking good according to the analysis provided by Kathy Lien above. In the near term, the Dubai crisis might slaughter the economy of these major markets with the exception of probably Japan (since its currency is deemed "more" safe haven than US dollar).
However, the long term view is that the major currencies are still going to rally with such strong fundamentals pushing them upwards.

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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.