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Disappointing US Data Triggers Turn in Equities and Currencies

Last updated 1/27/2012 9:07 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

Earlier this week the Federal Reserve planted the kiss of the death on the U.S. dollar and this morning we continue to see the lingering effects of their ultra-easy monetary policy. Although no one expected the central bank to turn hawkish, their message of low for long was received loud and clear by investors. Yet the Fed's aggressively dovish stance would not have had such a negative impact on the dollar if investors were still intimidated by the European sovereign debt crisis. This morning's strong Italian auction was a vote of confidence by investors whose demand was so strong that borrowing costs fell to their lowest levels in 6 months. EU commissioner Rehn also reassured the market that the Greek government and the Institute of International Finance, who represents private investors were close to a deal. Talk of a potential agreement is not new but the difference is that this time we are hearing it from the mouth of the EU's Commissioner for Monetary Affairs rather than an unnamed European official. 

However everything changed with the release of U.S. GDP numbers. Weaker than expected growth in the fourth quarter drove Dow futures sharply lower and when equity futures turned, so did currencies. The EUR/USD and GBP/USD gave up earlier gains while USD/JPY extended its slide. As much as the Fed may want to weaken the dollar, at the end of the day, the need for safety is all that matters these days. Growth accelerated by 2.8 percent in Q4 but the devil was in the details. Not only did GDP miss expectations but inventory stockpiling accounted for a large part of growth. This would be good news if demand was not weak. Personal consumption rose a mere 2.0 percent in Q4 vs 2.4 percent expected. The Federal Reserve won't be too concerned but they won't be pleased to see today's data either. Particularly with the GDP deflator, which is an inflation measure falling to its lowest level since Q3 of 2009. Weaker price pressures is one of the main reasons why the Fed stepped up their dovishness this week.

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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.