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EUR/USD at 1.32, Not Much Enthusiasm from Bernanke

Last updated 2/7/2012 10:15 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

With Greek officials working frantically behind closed doors to reach an agreement on fresh austerity measures, the EUR/USD has been both a victim and a beneficiary of headline risk. In early Europe, the EUR/USD was hit by a Saudi comment that it was "too early" to contribute to IMF funds, but since then the currency pair has traded sharply higher thanks to the news that Greece is working on a final draft of their austerity measures. The fact that the EUR/USD remained bid throughout the European and early North American trading sessions is a testament to the market's belief that Greece will eventually reach a deal with the Trioka because of how desperately they need additional bailout funds. The Greek Prime Minister may have commissioned the Finance Ministry to report on the consequences of a default and Eurozone exit but these are options that they will strive to avoid at all costs. Although the creation of a final draft means that progress is being made in Athens, the document still needs to be discussed by party leaders who can still derail the talks by opposing key measures. Investors are optimistic but only cautiously so with the EUR/USD stalling below its YTD high, because no one wants to be caught with any major positions until a deal is officially announced and approved.  

Meanwhile across the Atlantic, there was very little enthusiasm in Bernanke's voice when he testified before the Senate Budget Committee. The Fed Chairman refused to be swayed by Friday's strong non-farm payrolls report, opting instead to warn that we have a "long way to go" before the job market returns to normalcy. With the economy recovering at "frustratingly slow" pace and "inflation remaining subdued," the Federal Reserve hasn't written off the need for QE3. However signs of improvement in job growth and consumer sentiment will encourage the Fed to wait a few months before increasing stimulus. The IBD index rose for the sixth month in a row to 49.4 from 47.5. According to the Labor Department, job openings in the U.S. also increased in December from 3.118 million to 3.38 million positions - these reports are consistent with a gradual improvement in the labor market.

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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.