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FX: Small Improvements in US Data Fails to Help Risk

Last updated 10/13/2011 9:01 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Small improvements in U.S. data do not go very far in helping the Federal Reserve clarify its outlook for the U.S. economy which is why currencies and equities barely reacted to this morning's reports. In the month of August, the trade deficit narrowed to -$45.608B from -$45.625B. If you drop the last 2 digits and round the numbers, trade activity was virtually unchanged. There was a barely noticeable drop in both imports and exports. The same can be seen in weekly jobless which fell from 405k to 404k. The U.S. economy is chugging along at an exceedingly slow pace with barely any improvements. This is problematic for the Federal Reserve because it doesn't alleviate any of the pressures to increase stimulus. We learned from yesterday's FOMC minutes that the central bank is willing and ready to take additional steps to support the U.S. economy, if the outlook worsens. Thankfully it has not which is why the latest economic reports are not particularly damaging to the dollar because it keeps investors guessing about whether the Fed will resort to QE3. The jobless claims report provides very little insight into the health of the labor market other than showing that conditions haven't deteriorated. Continuing claims eased to 3.670M from 3.725M while the four week moving average of jobless claims fell to 408k from 415k.

Meanwhile up North, the Canadian dollar held steady after better than expected trade numbers. The country's trade deficit widened to -0.62B in August from -0.54B but the upward revision to the prior month's numbers and the better than expected read protected the Canadian dollar from further losses. Unlike the U.S., Canada enjoyed an increase in both exports and imports but the deficit widened because import demand outpaced exports. Considering that demand increased in nearly all of sectors tracked, we can interpret the trade report as a positive development for the Canadian economy. What was most impressive was the fact that despite the sharp decline in oil prices in August, demand for other products boosted overall exports and imports. 

Currencies and equities are trading heavier today after weaker Chinese trade data and comments from incoming ECB President Draghi who said "it would be a tragic illusion to think that the help (for the sovereign debt crisis) will come from the outside."

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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.