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.

Currencies Consolidate, US Data Does Not Eliminate Risk of QE3

Last updated 10/28/2011 9:59 AM ET (GMT -5) 1 Comments

• Share this:

Kathy Lien

Director of Currency Research, GFT

After a powerful day in the financial markets and a week of unusually high volatility, all of the major currency pairs are trading slightly lower this morning. Weaker economic data out of Europe and the U.S. along with a disappointing Italian bond auction halted the rally in currencies and equities as investors wonder if the European Rescue Plan is enough to eliminate all of the near term European centric risks in the financial markets. Unfortunately with rating agency Fitch saying that a 50 percent haircut on Greek bonds would constitute a default and MF Global imploding, the European sovereign debt crisis is still not behind us.  Before jumping into euro shorts however, there is a lot going on next week that could provide additional support for the markets including the ECB, Fed and G20 meetings while month end rebalancing will require a sale of U.S. dollars.  

This morning's U.S. economic reports left a lot to be desired.  Personal incomes grew 0.1 percent in September, which was weaker than economists had expected while personal spending rose 0.6 percent.  The fact that income growth is trailing behind spending growth indicates that Americans continue to practice the dangerous behavior of spending above their means.  The PCE deflator also showed very little price growth last month.  Although these numbers are disappointing for the Federal Reserve, they are not significant enough to make the central bank's decision next week any easier.  Particularly since the University of Michigan Consumer Confidence report was revised higher.  QE3 is still on the table and the comments from policymakers suggests that many members of the Fed are warming to the idea of more stimulus.  However we have seen as much improvements as deterioration in U.S. data since the last monetary policy meeting and the recent risk rally should reduce the pressure within the central bank to increase stimulus. In other words, QE3 will be very close call and a tough choice for the Fed next week.

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.

• Share this:

Comments (1)

Darkdoji

October 28, 2011 at 11:19 AM ET

This is the thing - speaking of the Italian bond sales, the EFSF part of the plan was designed or intended to keep funding costs low (and uptake normal) for Italy and Spain. But look how shaky today has been. Plus if Italian politics goes into crises phase as a result of austerity plans (in part) things could get really nasty fast. What is curious though is that markets rally supposedly in greeting the "great plan" but function as if they do not trust the plan. Could other forces be play? Prior positioning forcing short covering for instance? I am a newbie with scant knowledge of how the markets work - but will be interesting to know from seasoned personnel/traders whats gawn in that regard.

Add Your Comment

Please login to post a comment or sign up for an FX360® account.

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.