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U.S. Data Lifts Dollar as Hope for EU Deal Wanes

Last updated 10/20/2011 10:42 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

This morning's U.S. economic reports continue to show gradual improvements in the U.S. economy.  There has been a very consistent trend in U.S. data over the past few weeks that we find encouraging.  None of the reports are in line with a rapid expansion or recovery in the economy but they point to the possibility of stabilization.  One month does not make a trend and recent comments from Federal Reserve officials such as Rosengren last night indicate that the central bank is still seriously considering more QE but only if the economy worsens significantly or the Eurozone's problems become a greater threat to financial market stability.  Based upon this morning's U.S. data, there is little reason for the Fed to be alarmed. 

In Philadelphia, manufacturing activity rose for the first time in 3 months.  The Philly Fed survey increased from -15.7 to 8.7 this month which is a sharp improvement from the economist forecast of only -10.  The details of the report showed a rebound in the labor market along with a rise in shipments.  The increase in the Philly Fed index removes some of the concern of slower manufacturing conditions reported by the Empire State manufacturing survey and has helped to boost the dollar this morning.  Leading indicators also rose 0.2 percent in September which is in line with the market's forecast but represents a slight slowdown from the prior month's levels.  Existing home sales were worse, falling 3 percent to 4.91 million.  However the upward revision to the August numbers offset some of the pain.  More stringent jumbo loan limit rules were also implemented in October and according to a separate survey by the National Association of Realtors, this change in loan terms led to a 16 percent drop-off in planned sales. The average price of a home sold fell 3.5 precent, showing that despite a pickup in housing starts, it has been extremely difficult to move existing inventory and the only deals are being done is if sellers lower their prices.  This may not be good news for the housing market, but it is also not much of a surprise. Earlier this morning, jobless claims declined slightly to 403k.  

Although there has been some consistency in U.S. data, there has not been enough improvement or deterioration for the Fed to make a definitive decision on QE3.  Instead, the only thing that can sway their decision in the near term is the outcome and market's reaction to the EU and G20 Summits.  The euro has come under selling pressure this morning as German officials continue to throw cold water on the market's hope for a comprehensive rescue plan this weekend.  Headlines are dominating short term risk appetite and will continue to do so over the next 48 hours.  Even though investors are still choosing to focus on the positive, German and French officials are not so subtly hinting that a deal will be difficult to strike. 

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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.