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EUR Higher on Mixed US Data and Lower EZ Bond Yields

Last updated 2/1/2012 10:07 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

All of the major currencies are trading higher against the U.S. dollar this morning thanks to better than expected manufacturing numbers from China and Europe. Investors remain optimistic because as long as there is evidence of growth in Asia, there will be hope that a sharp slowdown in the global economy will be avoided this year. We can provide a million reasons for why this optimism may be misplaced but the fact of the matter is that currencies and equities are performing extremely well today. The EUR/USD continues to take its cue from European bond yields - Ten year Italian, Spanish and Portuguese yields are sharply lower this morning which helped to lift the EUR against the USD. Having spiked to a high of 16.58 percent, Portuguese yields are falling back towards 14 percent. At the same time, the compression of interest rate differentials continues to underpin USD/JPY. We are in intervention territory for the Yen but the BoJ probably won't come into the market until USD/JPY falls below 76 and at that point, traders should brace for intervention at anytime. 

Mixed U.S. economic data kept the dollar under pressure. According to the ISM index, which rose from 53.1 to 54.1 in January, U.S. manufacturing activity accelerated last month thanks to higher prices paid, increases in inventories, new orders and order backlog. Employment growth on the other hand slowed which may not bode well for the labor market but does not detract from the gradual recovery in the manufacturing sector. Earlier this morning, a report from private payroll provider ADP showed job growth slowing in the month of January. A total of 170k jobs were added by U.S. companies last month, down from 292k in December. With U.S. labor market numbers due for release on Friday, the ADP report points to a smaller rise in payrolls. Although ADP has not been the best leading indicator for NFPs, the decline in job growth is consistent with the market's expectations for January payrolls. The magic number on Friday will be 100k. If job growth exceeds 100k, the Federal Reserve will hold on tight and keep monitoring the economy for more signs of weakness before pulling the trigger on QE3. However if payrolls rise by less than 100k, the Fed will be under pressure to announce another round of asset purchases in March.

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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.