All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

Dollar Soars as U.S. GDP Blows Away Expectations

Last updated 1/29/2010 8:53 AM ET (GMT -5) 3 Comments

• Share this:

Kathy Lien

Director of Currency Research, GFT

The U.S. economy grew by 5.7 percent in the fourth quarter, blowing away market expectations and sending the dollar sharply higher against the Japanese Yen. Inventories accounted for close to 60 percent of the rise in GDP indicating that growth was primarily fueled by inventory build-up ahead of the school year and the holiday shopping season.  Stronger consumer spending in the last 3 months of the year also contributed positively to GDP.  Growth in Q4 was the fastest since the third quarter of 2003 - more than 6 years ago.  The critical question going forward is whether this momentum can be sustained. 

Although we were skeptical about whether GDP could live up to expectations, we also pointed out that after the recession in the 1980s, GDP grew at very healthy rates.  Between the first quarter of 1983 and the second quarter of 1984, GDP grew at an average rate of 7.68 percent.  This is not to say the U.S. economy will replicate this pace of growth in the quarters ahead, but we have previously seen the rubber-band effect after deep recessions.

The latest GDP numbers reinforces the credibility of Fed Chairman Ben Bernanke who has just secured his second term as the head of the U.S. central bank.  With the holiday shopping season behind us and chilly temperatures across the nation, it will be interesting to see consumer spending and inventory buildup will continue to support the U.S. economy.

Meanwhile, for the foreign exchange market, the critical question is whether the strong U.S. report will finally cause the dollar to trade off of its economic outlook and not risk appetite. We have long stressed that USD/JPY tends to be the best currency to use to trade U.S. data because it has the most logical reaction to the report. For example, this morning's solid GDP number was unambiguously positive for USD/JPY. The other major currencies like the EUR/USD and the AUD/USD are struggling with the dueling forces risk appetite and the outlook for the U.S. economy.  For the time being, it appears the strong U.S. report is more positive for risk as the EUR/USD recaptures its initial losses. 

The information, including Commentary and Trade Ideas, provided on FX360.com should not be relied upon as a substitute for extensive independent research which should be performed before making your investment decisions. Global Forex Trading and FX360 .com is merely providing this information for your general information. The information and opinions presented do not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision and should tailor the trade size and leverage of their trading to their personal risk appetite. Any projections or views of the market provided by FX360.com may not prove to be accurate.

The views of the authors and analysts are not necessarily those of Global Forex Trading, its owners, officers, agents or other employees. FX360.com and the currency research team will not be responsible for any losses incurred on investments made by readers and clients as a result of any information contained on FX360.com. Global Forex Trading and the currency research team do not render investment, legal, accounting, tax, or other professional advice. If investment, legal, tax, or other expert assistance is required, the services of a competent professional should be sought.

• Share this:

Comments (3)

Doobp

January 29, 2010 at 12:55 PM ET

Kathy!!! was that SNB intervention?!!??! i was looking at eurchf and bought in at 1.4644 with my demo. lol..

klien

January 29, 2010 at 01:17 PM ET

Very possible

Yaakub

January 31, 2010 at 09:23 AM ET

Hi, what is your personal view in Euro/Usd charts?

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.