• Share this:

Another round of relatively healthy U.S. economic data has helped the dollar extend its gains, particularly against the Japanese Yen. Since USD/JPY failed to benefit from yesterday's sharp improvement in risk appetite, today's rally suggests that the currency pair is finally catching up with Tuesday's price action.  Aside from the sell-off in the euro, most of the major currency pairs have held onto their recent gains because a stronger recovery in the U.S. will benefit the world.

The first U.S releases that we had this morning were import prices and housing starts. Import prices rose 1.4 percent compared to the market's 1.0 percent forecast.  According to the report, higher petroleum and industrial supply prices boosted inflationary pressures last month and we expect tomorrow's producer price report to be affected by the same price pressures.  Housing starts rose 2.8 percent to 591k, a 6 month high while building permits fell 4.9 percent.  Building permits are usually a leading indicator for the housing market which suggests that even though the housing market is doing well now, it could deteriorate in the future.  Industrial production also rose 0.9 percent last month, the strongest since August - manufacturing activity was especially robust in the automotive industry.  Capacity utilization rose to the highest level in over a year and the decrease in excess slack supports the tightening telegraphed by Bernanke last week.

What to Expect from the Fed

The FOMC minutes will be released later this afternoon and if you recall, the tone of the last FOMC statement was almost blindly optimistic. Despite the deterioration in the labor market and consumer spending prior to the FOMC meeting, the Fed upgraded their assessment of the economy by saying that that “economic activity has continued to strengthen.” At that time, everyone was skeptical but based upon the economic data released since the last meeting, their optimism is vindicated. Adding to the bullishness of the FOMC announcement at the time was Fed President Hoenig’s dissenting vote. The head of the Kansas City Federal Reserve believed that the improvement in the economy and the stabilization of financial conditions no longer warrants “exceptionally low levels of the federal funds rate for an extended period.” When you have one FOMC member voting in favor of more hawkish language in the monetary policy statement, additional members are likely to follow suit and traders will be looking to see if this sentiment is reflected in the minutes. If the minutes reveal optimism, it could fuel further gains in the dollar. However given yesterday's comments from Fed officials, the sentiment at the Federal Reserve could still be very cautious as they worry about unsustainable fiscal deficits in the U.S., an elevated unemployment rate and low inflation.

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.

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.