Erratic Reaction in Forex After US and CAD Trade Numbers

Last updated 3/11/2010 9:00 AM ET (GMT -5) 7 Comments

Forex Trading involves high risks, with the potential for substantial losses and is not suitable for all persons. Past performance is not necessarily indicative of future results.

Kathy Lien

Director of Currency Research, GFT

U.S. and Canadian trade numbers for the month of January were much stronger than the market had anticipated but weakness beneath the U.S. trade report's headlines pushed the U.S. dollar sharply lower.  Even though the U.S. trade deficit shrank from -$39.9B to -$37.3B, exports fell for the first time since April.  Imports also dropped by 1.7 percent, the largest decline in 11 months.

The contraction in imports and exports reflects weak demand both internationally and domestically.  More specifically, import and exports of automobiles have decreased as the incentives offered by governments around the world to buy cars begin to fade. This mix is negative for the dollar because it does not play into the growth story. A smaller trade deficit is only dollar positive if it involves a larger increase in imports and a smaller increase in exports.  What is particularly worrisome is that Americans imported the fewest barrels of crude oil in 10 years.  Traders were also slightly disappointed by the jobless claims numbers which showed a smaller decline in the jobless claims and higher continuing claims.  We don't believe that traders should make too much of the jobless claims numbers because weekly claims are still at the lowest levels in 2 months and continuing claims increased only because they fell to the lowest level in more than a year the prior week.  With a strong U.S. retail sales report expected tomorrow, the weakness of the dollar should be limited.

Meanwhile the Canadian trade balance rose from 0.1B to 0.8B. Originally, Canada's trade balance was expected to return to surplus in January but there was an upward revision to the prior month's report.  A 0.5 percent gain in exports was fueled by shipments of industrial products and energy while the 1.7 percent decrease in imports was due to a drop in domestic demand for energy and machinery.  Aside from the trade numbers, capacity utilization increased from 68.7 to 70.9 percent which indicates that productivity is increasing.  House prices grew 0.4 percent, right in line with market expectations and in line with strong recovery in the housing market. 

Comments (7)

Silenus

March 11, 2010 at 11:47 AM ET

Dear Head Honcho at GFT
I write as a huge fan of your site fx360. It's format is agreeable and easy to read, the content relevant and timely while both commentators and analysts are among the best I've read anywhere.
I do however have the following criticisms and suggestions to make:

Criticism.
1.The recos are too complicated. The ' If ABCD, where C>A and D>B, then buy at X' sort of thing. Honestly who remembers all that high school algebra stuff?
(By the way, when CD > AB by Y, does that mean that DE will at least equal Y? Seriously, I want to know.)
2. Most recos are short term trend reversals. These are the hardest, most unforgiving and least profitable kinds of trades. Unsuited (in my opinion) to most non professional traders.
3. Risk/Reward ratios are way off. Often the profit expectation is simply not worth the screen time and hassle involved, never mind the monetary risk.
(I mean, anyone really sit around waiting for an entry... and then decides if it's a 'long bar' or not? whew!)
4. Some recos ignore the fact that an account might have contradictory open positions from previous recos.
(While of course this doesn't invalidate the trade it does make it hard for the non pro to follow all recos, which consistency demands)

Suggestions.
1. Simpler recos. The 'Buy at X, stop at Y, limit at Z' kind.
2. More swing and trend trades (The more definate the time frame the better.)
3. A 'Set and Forget' model currency portfolio, updated as needed
4. An 'Always in the Market' section concentrating on the majors for those that are obliged to trade everyday.
5.Recos (or at least analysis) on gold and the S&P given their corelation to currency markets.
6.More articles on methodology and perhaps specific methods or indicators. These are the most popular judging from the feedback posts.

Thank you for your time: Silenus

margaret

March 11, 2010 at 08:13 PM ET

I'm with you Silenus. This is a fantastic site but the recommendations are not of the set and forget type. I've had a few great wins with FX360 and way more losses. With the wins, I am always amazed that they are so precise. I use another forex site which meet #1 to #4 of your suggestion list and while I usually adjust the buy, stop and target I have had big success with their ideas simply because they are able to be set and forget and dont require a physics degree to undserstand them. On the other hand, Brad is someone who I have completely fallen in love with - his writing and the personality he gives his posts gets me every time. Brad - I have a couple of good looking unmarried daughters who need a husband. They are intelligent, well travelled, are asset rich and come with a 1hour drive from the ski fields to a surf beach ......and all the grass fed steak, lobster and pavola you can eat !
SILENUS: whats you predictions for our old friends eur/jap?

Silenus

March 11, 2010 at 09:36 PM ET

Hi.M. Since you asked, I got short the EURJPY just above 133 once it broke the 200 day MA. Felt like a genius till last week when the boys decided on a short squeeze - had to watch it go from below 120 to over 124. Hurts like hell! Figure I'm still good till 125+ (previous daily swing hi). The idea of course is to stay with the position till the 112 - 111.50 area.

margaret

March 11, 2010 at 10:31 PM ET

Sinelus - I went eur/jpy long with a target to OCO at 124.10. I was pretty please with myself as I'm no cracker at this. I 'm the type that will pick a horse at the race track by its name and not its form. I rec long to 125 so Ive got 2 orders going. one long and one short simply because I'm not sure. I love your humour and I really enjoy your posts. I also like your crystal ball so I'll stay with the short. M

FXDragon

March 12, 2010 at 01:31 AM ET

Hello Margaret,
Could you email me the name of the site i could check it out.
coldtur@hotmail.com

Thanks,

Derekis

March 11, 2010 at 08:09 PM ET

Hi,

No offense Kathy, although I'm a huge fan of FX360.com, read all your daily comments, bought your best selling books and stuff, but Silenus really got a point there.

Hiyah Silenus, I salute you my fellow trader. You hit the nail right on the head, practically took the words right out of my mouth!

The way the recommendation trades are given can be a drag at times, that is if you don't bother to click and expand the charts to figure out what the Gartley patterns a.k.a ABCD are implying.

Indeed, more articles on methodology are greatly welcomed, I'm becoming a regular follower of Brad's articles, he's really good at drawing in the crowds with his engaging writing style.

By the way Kathy, could you kindly breathe more "space" into your daily comments as well, it's already difficult enough to interpret contrasting economic data.

And sometimes reading a whole chunk of economic data all jumbled into a single large paragraph where I can't seem to differentiate the ocean from the sky can be extremely taxing for the old eyes.

Anyway, a million thanks for the great daily Forex info guys.... :)

Cheers,
Derekis

NeoFX

March 12, 2010 at 02:08 AM ET

Margaret,

what's the other site you follow? can you please give that out? I'm curious...

as far as the EUR/JPY goes (btw, one of my favorite pairs) going up short term i'm guessing to 125.50. Go short there with room all the way down to 118.00. that's a lot of pips if you ride those bearish formations along with counter downward trendline breaks and flags. so good luck.

that site please :)
you can email it to me also:
rdibrani@aol.com

thanks

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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.