All Trade Ideas and trading scenarios found on FX360.com are hypothetical. FX360.com has not placed these Ideas in a live trading environment. Forex Trading involves high risks, with the potential for substantial losses that exceed your initial deposit and is not suitable for all persons. Past performance is not necessarily indicative of futures results.

FX: Soft Start to the Fourth Quarter

Last updated 10/3/2011 10:08 AM ET (GMT -5) 0 Comments - Add your comment

• Share this:

Kathy Lien

Director of Currency Research, GFT

Based upon the weakness in currencies and equities this morning, this quarter could be as challenging as the last. We are moving into the last few months of the year and the first official day of trading in the fourth quarter has started off on very soft footing. The euro fell to its weakest level since early January and came within a whisker of breaking 1.33 while the Canadian dollar fell to a fresh two year low against the greenback.

Despite reports of stronger manufacturing activity in September, investors continue to reduce risk and seek safety in low yielding currencies. They are worried that they will be disappointed by policymakers and economic data and their concerns are justified given recent commentary from central bank officials. The meeting of European finance ministers is currently underway but hope of bailout funds being released to Greece or a decision on EFSF leverage was dashed by European officials who continue to cast doubt that changes to the EFSF have been proposed. We believe that currencies will trade heavy for most of the week as central banks join the Fed's call for easier monetary policies. Despite signs of higher inflationary pressures in some parts of the world, slower global growth and heightened uncertainty is undeniable. The U.S. dollar could be a big beneficiary if we hear any dovish comments from the four central banks meeting this week. 

The only economic reports released this morning were manufacturing numbers from the U.S., Europe and Switzerland. According to the Institute of Supply Managers, manufacturing activity in the U.S. accelerated in the month of September. Unlike other parts of the world, the manufacturing sector has enjoyed growth every month for the past year but as encouraging as this may be, the U.S. is a service and not manufacturing driven economy which explains why the impact of the stronger report on the dollar and risk appetite was limited. The ISM index rose to 51.6 from 50.6 thanks to higher prices, increased production, supplier deliveries, customer inventories, new export orders and employment. Construction spending also rose 1.4 percent in August, erasing the past month's decline. In the Eurozone, manufacturing activity was revised slightly higher in September but remained in contractionary territory. The U.K. on the other hand experienced growth in manufacturing which is a departure from Switzerland who saw its manufacturing activity contract for the first time in more than 2 years. 

Although the U.S. non-farm payrolls report will be one of the biggest event risks this week, for the time being the focus will remain on Europe. The Ecofin meeting wraps up tomorrow and everyone will be listening in closely for clues on whether Greece will realistically receive its next aid payment by mid October. Also, if an expansion to the EFSF is even mentioned, it could be positive for the euro but if there is no talk of EFSF expansion or leverage, the euro will once again be punished for the market's disappointment. 

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.

Loading...

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.