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FX: Very Strong Claims, Solid Spanish Auction - All Good for Risk

Last updated 1/19/2012 9:02 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

According to this morning's U.S. economic reports, conditions in the labor market continue to improve. Weekly jobless claims fell to its lowest levels since April 2008 and as a survey period for the January non-farm payrolls report, it reflects a healthy improvement in the labor market. Weekly claims dropped to 352k from 402k while continuing claims fell to 3.432 million from 3.647 million. Federal Reserve officials will be relieved to see claims back off from the 400k mark and at bare minimum, we believe this week's jobless claims report points to payroll growth in excess of 150k. Although housing starts and building permits declined in December, the U.S. economy is moving in the right direction because the labor market needs to stabilize before housing can follow. Housing starts dropped 4.1 percent last month while building permits declined 0.1 percent. November was also a very strong month for both reports, so the latest decline could represent a bit of payback. Inflation on the other hand is muted with consumer prices holding steady in December. Much of the decline had to do with lower gas prices because core CPI grew 0.1 percent. The latest economic reports may not contain drastic enough changes to affect Fed policy, but there is enough to make them feel less concerned about the labor market and more confident in their current monetary policy stance. 

The Philadelphia Fed index will be released later this morning but the focus remains on Europe. The EUR/USD continued to power higher thanks to a strong Spanish bond auction. So far, we have not seen a major increase in European yields or a major pullback in investor demand since S&P's downgrade which can explain why the EUR/USD has performed so well. Not only was the bid for cover ratio very strong, but the interest rate on the 10 year bonds was lower than the previous auction. Greece is still in the background and can spoil the party if negotiations on the PSI go sour but for the time being investors are happy to have their rose tinted glasses on.

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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.