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US: Risk Appetite Lifted by US Data and German Vote

Last updated 9/29/2011 9:13 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Better than expected U.S. economic data and the smooth passage of the amendments to the European Financial Stability Facility in Germany helped to boost risk appetite across the financial markets.  U.S. jobless claims fell 37k to 391k from last week to the lowest level since April.  Normally, the dip below 400k would be extremely encouraging but even the Labor Department does not believe in the improvement.  A department official attributed the large decline last not to stability in the labor market, but rather technical issues and seasonal adjustments.  However the dollar still rallied on the news because The four week moving average of claims, which gives a more accurate sense of the overall trend in the labor market declined by 5,250, allowing investors to overlook the "technical issues." Second quarter GDP was also revised up to 1.3 from 1 percent.  Although economists had expected an upward revision, growth in the second quarter was firmer than expected thanks to stronger retail sales and spending on structures.  As such, risk appetite has benefitted from the combination of better GDP and labor market figures.  Although we are also encouraged by the U.S. economic reports and they may reduce the urgency for QE3, they do not change the fact that the U.S. economy is weak and that more stimulus is expected from the Federal Reserve. 

Meanwhile the euro is trading higher thanks to the Germans' decision to approve the EFSF expansion.  With 523 members of the Bundestag voting for the increase in the EFSF and only 85 voting against the decision, the vote was as close to being unanimous as German Chancellor Merkel could have hoped for.  Most importantly, 315 members of her own coalition backed the proposal, helping her keep a Chancellor's majority.  Having such a large number of her own party support the decision was important because it signals potential support for future bailouts.  Investors have looked beyond the EUR440 billion expansion and now expect, not want the Europeans to come up with a much larger bailout package.  Merkel will need the support of her own party in order to get this done. 

U.S. pending home sales will be released at 10am.  There have been some signs of stability in the U.S. housing market, but pending home sales can be choppy and are expected to decline for another month. 

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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.