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FX: Currencies Extend Gains Courtesy of US Data

Last updated 1/26/2012 10:09 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Decent to mixed economic data from the U.S. along with the Federal Reserve's commitment to a long period of easy monetary policy has shifted the mood in the financial markets, propelling currencies and equities higher.  Orders for big ticket items made to last for more than 3 years rose 3.0 percent last month in a sign that consumers did not hibernate this winter.  In fact excluding orders for transportation equipment which tend to be volatile, durable goods rose 2.1 percent, the highest level in 9 months.  The Federal Reserve may be worried about the "significant downside risks" but the latest economic reports reassure the market that the outlook for the U.S. economy may not be as bad as the central bank fears.  The same is true for Europe - everyone is warning about an impending recession but with consumer confidence in Germany rising alongside business and investor confidence, the hope is that recession may be averted.  Based upon the rally in the euro and the decline in European bond yields, investors do not share the experts' grim outlook for the Eurozone. Italian bond yields dropped to a 7 week low and is under 6 percent following strong auction results.  

Jobless claims increased last week from 356k to 377k. This rise was larger than anticipated, but as long as claims remain comfortably below 400k, the U.S. labor market is still slowly recovering. Continuing claims increased to 3.554 million from 3.466 million the previous week.  Leading indicators rose 0.4 percent which was less than expected but nonetheless an increase from the previous month.  However considering the downward revision in November, the overall report only paints a picture of a slow recovery.  New home sales on the other hand fell 2.2 percent.  The decline was a big shocker even after taking the prior month's upward revision into consideration.  The housing market is one of the weakest parts of the U.S. economy and an area of serious concern for the Federal Reserve. Rather than hurting the risk rally, these weaker reports extended in the gains in the EUR/USD, GBP/USD and other high yielding currencies as they gave investors yet another reason not to buy dollars. 

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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.