• Share this:

This morning's U.S. economic reports provided a minor boost for the U.S. dollar, but the data surprise was not large enough to offset the corrective mode in the forex markets.  

After stagnant growth in June, it was encouraging to see an increase in income and spending during the month of July. Personal income grew 0.2 percent which was slightly less than forecast while personal spending grew 0.4 percent, slightly more than forecast. Incomes and consumption are moving in the right direction and the faster growth in consumption compared to income implies that consumers have grown slightly more willing to spend.  On a quarterly basis, personal income and spending also continued to rise.

Meanwhile inflationary pressures have also increased slightly with the deflator for personal consumption expenditures rising from an annualized pace of 1.4 to 1.5 percent.  Core prices which are more stable grew 0.1 percent in July.  Although this pace of growth is not likely to garner any attention from the Federal Reserve, it is aligned with lighter deflationary pressures.

Up North, Canada reported a sharp expansion in their current account deficit due to weaker demand from the U.S. In the second quarter, Canada's deficit widened to CAD$11 billion from CAD$8.5 billion.  Despite the recent rate hikes from Canada which imply that the economy is improving, falling orders from the U.S. for lumber and automobiles have sapped demand.  As Canada's #1 trade partner, the country will the undoubtedly be impacted by the health of the U.S. economy.

Sorry BoJ, Not Good Enough

Aside from this morning's U.S. economic reports, Japan's decision to increase quantitative easing is also having a meaningful impact on the forex market.  We have long believed that the BoJ's comments on the Yen amounted to nothing more than empty threats.  Last night, the central bank boosted the amount of funds in their bank loan program by 10 trillion yen to a total of 30 trillion.  Knowing that intervention would have probably been a waste of money because the impact on the forex market will be temporary and limited, the Japanese government has resorted to monetary and fiscal stimulus.  Although this is the more prudent option because it provides direct stimulus to the economy, it is not one that investors are satisfied with.  The Yen is still trading near its 15 year highs with USD/JPY hovering below 85. BoJ Governor Shirakawa pledged additional action if necessary and there is a good chance that the government will follow up with a fiscal stimulus plan.

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.