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Dollar Rallies on Strong ISM Data and Obama's Revised GDP Forecast

Last updated 2/1/2010 10:17 AM ET (GMT -5) 2 Comments

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Kathy Lien

Director of Currency Research, GFT

Welcome to a big week in the forex markets with 3 central bank rate decisions and employment reports from the U.S. and Canada due for release.  A meeting between G7 Finance Ministers and Central Bankers will also be held on Friday and Saturday (Feb 5 and 6) and any comments about the recent volatility in the currencies - which would be a more politically palatable way of saying excessive dollar strength - could have sharp ramifications for the forex market.

Dollar bulls have banked some profits ahead of what will certainly be a volatile trading week. This morning's U.S. economic reports have been mixed with manufacturing ISM rising from 55.9 to 58.4, the highest level in the more than 5 years and construction activity, personal income and personal spending falling short of expectations. January was a good month for the manufacturing sector with activity accelerating in the U.S., U.K., Eurozone and Australia. In the U.S., a pickup in export orders, employment, supplier deliveries, production and prices contributed to faster manufacturing activity.  Yet what is most impressive is that the sector is continuing to expand despite the appreciation of the U.S. dollar in December. The global pickup in manufacturing activity is largely tied to the expansion of manufacturing demand in China in the second half of 2009.  However signs of a slowdown in the Asian Giant has begun to emerge and combined with dollar strength in January, it will be interesting to see if the global improvement in manufacturing can be sustained.  

Personal income growth slowed to 0.4 percent in December while personal spending slowed to 0.2 percent.  Incomes grew by a faster pace than expected but the upward revision to the November data put income growth lower than the previous month. Given the sharp decline in retail sales in December, the slowdown in spending was not particularly surprising. According to the PCE deflator, inflationary pressures are also up modestly.  Finally construction spending fell at a much sharper rate in December which confirms the disappointments that we have seen in new and existing home sales. On balance, these reports indicate that the economy is improving albeit at a slower pace.

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Comments (2)

Semaj

February 01, 2010 at 10:51 AM ET

K, with gold & oil up & along with the Dow & S&P rally today, isn't that USD weakness based on the intermarket? Head fake news release possibly? Short term at best based on recent trends.

klien

February 01, 2010 at 03:00 PM ET

Bond yields also up so this risk appetite rally is real - only question is will it last.

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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.