August 19, 2008
Here is an article that I posted on GFT’s website. Boris and I will be publishing our articles there until we launch our new portal, which we are sure will blow your minds. I will also be publishing a daily wrap up of the currency market that I hope you will like - check back often! Read our FX commentary.
With the US dollar hitting a six month high against the Euro on a intraday basis, everyone in the financial markets are talking about how much further the dollar can rise. However not as many people have entertained the notion of what could trigger a major reversal in the US dollar. Since July, the greenback has risen 8 percent against the Euro and 7 percent against the British pound and in all likelihood, the dollar rally will continue. However a reversal in the US dollar could be triggered by factors that are more realistic than most traders may have expected and the longer the current rally continues, the greater the risk of a reversal. There are 3 things that I believe could trigger a brutal correction in the dollar including a turn in sentiment, a rise in oil prices and a big US bank failure.
The currency market is trending by nature and we have seen the strength of these trends over the past month, but it is important to realize that just as quickly as market sentiment has turned dollar positive, it can also turn dollar negative. All the currency markets needs is one big shocker and the EUR/USD could be headed back towards 1.50.
1. Sentiment Turns – USD long positions on IMM hit 14 month high
For the third week in a row, currency speculators have boosted their bets on a further rise in the U.S. dollar. Long positions according to the Commitment of Traders report has hit a 14th month high and whenever positions get this stretched, it is a red flag that calls for turn right around the corner. The logic is that with everyone who wants to be long is probably already long and as a result, there are only a few buyers left in the market.
2. Oil Prices Begin to Turn Higher
One of the primary reasons why the US dollar has rallied so dramatically is oil prices. Although it is oftentimes difficult to tell which is leading the other – the currency or the commodity, there is no doubt that the correlation is strong. Since its highs in July, oil prices have fallen 24 percent but with Hurricane season just beginning, anything close to Hurricane Rita in 2005 could send oil prices back higher. Still, I do not expect new highs in oil prices – they have peaked and any move would probably only take prices back up to $125 - $130 a barrel. We are already seeing this dynamic play out today as the rise in oil prices triggers a sharp rally in the EUR/USD.
3. A Big US Bank Failure
With the one year anniversary of the subprime crisis looming, the financial sector is back in focus – unfortunately for all of the wrong reasons. The markets are not celebrating the recovery in the financial markets but are instead focusing on fresh worries. Fannie Mae and Freddie Mac are in big trouble – their shares have plunged leading to talk about nationalization or a big bailout by the US government. Kenneth Rogoff, a former IMF Chief Economist is warning of a big bank failure ahead. Could it be Lehman Brothers who is rumored to be looking to sell their investment management business? No bank would sell such a high value asset if they were not desperate for cash. Also, SageCrest a US hedge fund who once had as much as $950 million under management also filed for bankruptcy protection today. Trouble is brewing in the financial sector and so far we have only seen a third of the writedowns that Nouriel Roubini aka “Mr. Doom” has previously predicted. Although bank failures have been far less in this cycle than in the past (8 so far), a big failure could lead to sharp sell-off of US investments and in turn, the US dollar.
Dollar Rally to Slow
I still believe that the US dollar is headed for more gains, but I expect the rally to slow. Other than producer prices, we do not have any major US data this week – only the Philly Fed index and leading indicators are on the calendar. Bernanke will be speaking about Financial Stability on Friday, but with no questions expected, the central bank head will probably stick to topic. As a result, this is prime time for a correction in the US dollar, but don’t expect this correction to last because the problems abroad in the Eurozone and the UK are only beginning. A move in the EUR/USD below 1.40 is still far more likely than a new high.
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Posted in GFT, dollar rally, Oil
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August 18, 2008
We are excited to announce that we have joined GFT!
Here is the press release that provides information:
GFT Hires Currency Strategists Kathy Lien and Boris Schlossberg
Last update: 12:04 p.m. EDT Aug. 18, 2008
ADA, Mich., Aug 18, 2008 /PRNewswire via COMTEX/ — GFT, worldwide leaders in online trading, announced the addition of Kathy Lien and Boris Schlossberg to its currency research division.
As two of the forex market’s most respected analysts, they will serve as GFT’s new directors of research, boosting the company’s forex analysis and commentary with new ideas and techniques for trading, while also delivering new educational tools to the marketplace.
GFT President and CEO Gary L. Tilkin said that the addition of Lien and Schlossberg is a huge step forward for GFT, which is already one of the largest and most esteemed forex dealers in the world.
“Their credentials, reputation and integrity complement our core values and commitment to providing our customers with the highest level of service,” he said. “We’re looking forward to working with them to advance our initiatives as the premiere company in online trading and trader education worldwide.”
“I’ve had my eye on GFT for quite some time,” said Lien. “Their phenomenal growth over the last 10 years is a testament to the strength of the company and the people who work there. I’m very excited to join the team.”
Schlossberg echoed Lien’s comments, adding that the pair has a lot of new ideas to help GFT and its customers.
“In addition to the analysis and strategies we’ve been using for years, we’re getting ready to unveil some new techniques that may help forex traders enhance their trading strategies and identify more trading opportunities,” he said.
Before joining GFT, Schlossberg was a senior currency strategist at Daily FX. His career began more than 20 years ago with Drexel Burnham Lambert and he has experience trading forex, equities, options and stock index futures. He is the author of several market analysis books and is a regular guest on CNBC and Bloomberg television. His daily currency research is regularly quoted by Reuters, Dow Jones and Agence France Presse newswires.
Lien was chief currency strategist at Daily FX prior to her new position with GFT. She is an internationally published author and forex professional with nearly a decade of experience using technical and fundamental analysis to trade spot forex and options. She has worked for JP Morgan Chase’s cross markets and foreign exchange trading groups, and she is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters.
Together, they use a unique combination of technical and fundamental analysis to offer possible strategies and trade ideas. They’ll be responsible for providing analysis to GFT’s global network of individual and institutional customers, as well as financial media outlets.
Lien and Schlossberg will make their debut at the 2008 Forex Traders Expo in Las Vegas, September 12-13. Expo attendees are invited to stop by GFT’s booth to meet Lien and Schlossberg and find out more about how they can obtain their exclusive research through GFT.
About GFT
Founded in 1997, GFT is a world-leading provider of real-time currency dealing, pricing and comprehensive services for retail and institutional foreign exchange traders. GFT has served a global customer base in more than 130 countries through its DealBook(R) 360, DealBook(R) WEB and DealBook(R) Mobile trading software and 24-hour, 5.5-day-per-week dealing desk operation. The company’s world headquarters is based in Ada, Mich., with global offices located in New York, Chicago, London, Dubai, Tokyo, Singapore and Sydney (London office operated through GFT Global Markets UK Ltd.).
GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including Global Forex Trading and GFT Global Markets UK Limited. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful. Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which are leveraged, can carry a high level of risk, and may not be suitable for all investors. It is possible to lose more than the initial investment. In Australia, GFT means Global Futures & Forex, Ltd. ARBN 103 508 461, AFS Licence 226625. A Product Disclosure Statement (PDS) is available at www.gft.com.au. You should read and consider the PDS before making any decision to deal in GFT products.
GFT| Division of Global Futures & Forex, Ltd. | gftforex.com
CD12U.012.081508
Contact:
Ryan Knott
rknott@gftforex.com
616.956.9273 x10168
SOURCE GFT
http://www.gftforex.com/
Posted in Uncategorized
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August 18, 2008
I will be a featured guest on Fox Business all next week with Alexis Glick. Tune in at 9am-10am ET
Posted in Fox Businesss
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August 14, 2008
By Kathy Lien, Director of Currency Research for GFT
In the 2 weeks that I have been away, there have been dramatic moves in the currency market. Not only did the US dollar carve out a bottom, but the greenback’s recovery has been impressive. In less 1 month, the EUR/USD has plunged 1000 pips, which is a drop of more than 6 percent. The psychologically level of 1.50 was easily broken and now, the currency pair is eyeing 1.45.
The Euro continues to get killed with the currency falling to a fresh 5 month low against the US dollar today. Although the primary catalyst has been dollar strength, growing problems in the Eurozone has intensified the selling pressure. Good news is coming out of the US more often than in the past while bad news continues to pour out of the Eurozone. Therefore it is no surprise that the strong Euro is finally catching up to the region’s economy. The Eurozone could not have remained immune to the US slowdown for much longer.
5 forces driving the EUR/USD lower and with no respite in sight for any of these trends, the currency pair should be headed for 1.45. These 5 factors are oil prices, eurozone and US economic data, market sentiment and the chances of a rate hike by the Federal Reserve before the end of the year.
Let’s take a look at these forces in further detail:
5 Forces Driving the EUR/USD Lower
1. Oil Prices - Since July, oil prices have fallen more than 20 percent. As the primary drag on global growth, the sharp correction will provide strong stimulus for the global economy. $100 a barrel oil prices is exactly what the world needs to turn growth around and the drop in oil prices over the past month pushes us in the rights direction. Not only will this help to lower inflation expectations, but it will also drive down gasoline prices. Central bank officials are hesitant about believing that the drop in oil is real and here to stay, but once they see inflation start to ease (which will take 2 to 3 months), they will loosen the noose on monetary policy.
2. US Data - Although today’s consumer price data contrasts with the move in oil prices, the fastest pace of consumer price growth in 17 years is nonetheless dollar bullish. Inflation was a bigger problem than most people expected last month, but at the same time, the drop in oil prices provides hope for the future.
3. Eurozone Data - The Eurozone economy on the other hand is getting worse and still has a ways to go before it hits a bottom and begins to recover. This morning, we learned that for the first time in more than 10 years, the Eurozone economy contracted. The economic storm that has been brewing around the world has hit Germany hard. I expect further misses in Eurozone data in the coming months.
4. Fed Fund Futures are pricing in a 34 percent chance that US interest rates will be increased before the end of the year. As US economic data continues to improve, I expect those expectations to rise. Although I think that a rate hike will not come until 2009, rate cuts are definitely out of the picture.
5. Market Sentiment - Currency traders have become extremely dollar bullish. The FX market is very trending and for that reason, unless there is a big surprise, the dollar rally could continue for much longer than most people would expect.
Keep an eye on these 5 forces as they will tell you how much further the dollar will rise.
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Posted in forex blog, eur/usd, Fed Rate Cut Expectations, Forex Podcast, Forex News, euro, US Dollar
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August 5, 2008
For the second meeting in a row, the Federal Reserve left interest rates unchanged at 2 percent. By now, everyone should realize that the easing cycle has come to an end and that the next move by the Fed will be a rate hike and not a rate cut. There was only one dissenter - Fisher, who voted for a rate hike for the second meeting in a row.
The Fed is talking on tough on inflation and their hawkish comments indicate that they are afraid of getting too excited about the drop in oil prices.
With oil prices trading below $120 a barrel, inflation expectations have eased but the Fed refuses to acknowledge it. The Fed is afraid that just as quickly as oil prices have fallen, they could rise once again. Their hawkish comments were meant to appease potential dissenters like Fed Presidents Stern and Plosser and to hold them back from voting in favor of a rate hike. However don’t expect the hawkish comments to translate into a rate hike anytime soon. It is no secret that oil is determining Fed policy. Now that crude prices have cracked below $120 a barrel, the noose around the Fed’s neck has been loosened.
On growth, the Fed warned that the downside risks remain but they do expect the prior rate cuts to stimulate the economy over the next few months. It may not be until the fourth quarter or early 2009 before we seen some reasonable signs of growth.
High oil prices act as a tax for consumers and businesses, but it goes both ways meaning that the drop oil prices also acts as a tax relief for consumers and businesses. With oil prices inching towards $100 a barrel, half of the Fed’s problems have been solved. Consumers and businesses will breathe a sigh of relief and their spending should start to slowly pick up as long as the downtrend in oil continues.
Yes, the US economy still has a lot of problems including a weak housing and labor market. New home loans are difficult to get, but if consumer spending recovers, the rest of the economy will follow along as well.
The US dollar has had a great run. Over the past month, it hit a 6 week high against the Euro and traded within a whisker of its 7 month high against the Japanese Yen. The dollar continued to rally up to the last hour before the August FOMC meeting. No one expected rates to be changed, but there was less dissent within the Federal Reserve, which has pushed the dollar lower. Although the dollar has bottomed and is set to break 1.50 in the medium term, it has become overbought and could rally before it turns lower once again.
Compare the changes to the last 2 FOMC Statements (key changes are highlighted):
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Posted in dollar rally, forex blog, FOMC, Federal Reserve
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July 31, 2008
UPDATE - For BKT subscribers, there will be no changes. We are not going to be away from the markets and will continue to send 2 to 3 trade alerts a week
After building DailyFX from scratch and spending 6 years as its Chief Strategist, it is bittersweet for me to announce that Boris Schlossberg and I have left FXCM / DailyFX.
We are going on hiatus for the next 2 weeks and on August 18, we will officially announce our new plans. Not only are we joining a great new firm, but we have a ton of ideas that will blow your socks off!
I may or may not blog from now till then, but the high quality research that you have come accustomed to will be back in a heartbeat, I promise =)
Till then,
Kathy Lien
Posted in DailyFX, Insight
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