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The U.S. dollar is weaker this morning as Thursday's reversal in  equity markets left traders with a hint of optimism.  If stocks had closed down 180 points yesterday, we would not see any recovery in the forex market which is why the performance of equities today will be key to the sustainability of the gains in currencies. If stocks continue to fall, the gains in the forex market could slip away just as quickly as ice cubes melting in your hand.  Although Greece remains a background issue, bond yields and CDS spreads have fallen which suggests that fears are alleviating.   

Today's U.S. economic reports were mixed. Fourth quarter GDP was revised up from 5.7 to 5.9 percent, the strongest pace of growth since Q3 of 2003.  Chicago PMI also rose from 61.5 to 62.6, the highest level since April 2005. Although manufacturing activity in the Chicago region may appear to be booming thanks to a strong backlog of orders and increase in supplier deliveries, weakness beneath the headlines is the story of the day.  

For GDP, personal consumption was revised down along with the price index.  According to the Chicago PMI report, employment growth slowed materially in February along with production and new orders.  This is the story of the U.S. economy - growth with pockets of weakness. Also, not all news was good news.  The University of Michigan consumer confidence survey was revised down  from 73.6 to 73.7 and existing home sales plunged 7.2 percent in January to 5.05 million units, the lowest level since June.  With new and existing home sales falling sharply in the first month of the year, the tightness of credit has become a serious issue for prospective home buyers.  Don't rule out another day of risk aversion in currencies if stocks fall aggressively.

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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.