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Kathy Lien
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Kathy Lien is Managing Director for FX Strategy at and Co-Founder of Having graduated New York University’s Stern School of Business at the age of 18, Ms. Kathy Lien has more than 13 years of experience in the financial markets with a specific focus on G20... More
My company:
BK Asset Management
My blog:
BKAsset Management
My book:
Little Book of Currency Trading
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  • Hotter US Data Sends Dollar Soaring

    Currencies traded higher this morning in anticipation of U.S. economic data and when the numbers came out stronger than expected, the dollar rallied against Japanese Yen and other major currencies. However the reaction in the FX market was small in spite of the large upside surprise because investors realize that hotter inflation and stronger consumer spending won't affect the Federal Reserve's decision about QE3. There is no question that better data reduces the pressure on the Fed to ease but the central bank's decision on QE3 never hinged exclusively on the level of inflation or spending. The biggest challenges for the central bank have and will continue to be the labor market and Europe. Nonetheless, this is good news for the U.S. economy and the U.S. dollar because it signals that recovery may finally be gaining momentum.

    After falling for three consecutive months, retail sales rose 0.8% in the month of July. June numbers were revised down from -0.5 to -0.7% but the revision did not offset the upside surprise. Excluding autos and gas, retail sales rose 0.9% last month as Americans spent more on furniture, building materials, electronics and online purchases. The amount of money spent on food and gas stations also increased but not by as much as spending on home improvement - which is a healthier outcome for the U.S. economy. Producer prices rose 0.3% in July, up from 0.1% in June. Ex food and energy also increased by 0.4%. As we saw in the U.K. earlier this today, inflationary pressures around the world are beginning to rise but the increase is happening from a low base which means that inflation remains muted and poses no immediate threat to monetary policy plans.

    Aug 14 8:56 AM | Link | Comment!
  • Merkel Crushes EU Summit Hopes, Better US Data

    The U.S. dollar is starting the week higher against all of the major currencies, which tell us that investors are nervous about the EU Summit and the ability of EU leaders to send a convincing message to the market that a fiscal union is in the works. This skepticism is not misplaced considering that German Chancellor Merkel continues to oppose sharing sovereign credit risk, which is the only thing that could end the crisis. This morning in Berlin, she blamed the euro debt crisis on Europeans living beyond their means and crushed everyone's hope for a ground breaking announcement on Friday by saying that sharing euro-debt burden is counterproductive. Merkel left no room for ambiguity when she rejected joint euro bonds and bills and joint deposit insurance if it means joint liability. Unless the Germans soften their stance on burden sharing, this week's EU Summit could turn into another major disappointment for the EUR/USD. While Angela Merkel will be heavily outnumbered at the EU Summit, she controls the purse strings and without her nod of approval, Europe will not be able to get the clear roadmap that it needs to reverse the vicious cycle that pushed so many nations into begging for a bailout. Along these lines, Spain formally requested aid to recapitalize its banks this morning, sending Spanish 10 year bond yields higher. If the Germans refuse to budge at all, we expect the EUR/USD to remain under pressure throughout the week into the EU Summit.

    U.S. new home sales were the only piece of somewhat important economic data on the calendar today. According to the latest report, new home sales rose 7.6 percent to 369k in the month of May. This was the highest amount of homes sold since Nov 2009. The supply of new homes also dropped to its lowest level since October 2005. While this data is very encouraging, it is important to realize that inventory is only moving because prices are dropping. The recovery in the housing market is expected to continue to lag the recovery in the broader economy and for this reason the improvement in new home sales will not soften the case for QE3.

    Tags: Forex
    Jun 25 10:23 AM | Link | Comment!
  • EZ Events, CAD CPI Data To Force BoC To Neutral

    The lack of U.S. economic data has meant a quieter morning in the foreign exchange market. Most of the major currencies, the euro included are trading unchanged or lower against the U.S. dollar. As Eurozone finance ministers continue to meet and the leaders of Germany, France, Italy and Spain get ready for their four-way summit in Rome, currencies will most likely tread water until the press conference around 14 GMT. Although no major decisions are expected at this meeting, investors are extremely sensitive to any references relating to a stronger economic union. Signs of progress will be positive for the euro while more disagreements will hurt the currency.

    Canadian consumer prices is the only piece of North American data on the calendar today and according to the latest numbers, inflationary pressures eased materially in the month of May with consumer prices dropping 0.2 percent. Core price growth, which excludes more volatile items was flat last month. For the Bank of Canada, it will be difficult to continue to justify a hawkish monetary policy stance when prices are easing and consumer spending is declining. This is the second month of weaker data for Canada, which we believe will force the central bank to return to a neutral policy stance when they meet again. Given global and domestic economic conditions, there is no way they can justify a rate hike this year.

    Meanwhile going back to Europe, the biggest story of the day, it was no surprise to see a decline German business confidence. With manufacturing and service sector activity slowing, industrial production and factory orders declining, there are plenty of reasons why German businesses grew less confident in the month of June. In fact, the IFO report shows confidence slipping to its lowest level in 2 years. As long as Spain's banking problems and high yields keep the world nervous, German businesses will remain on edge. The latest round of softer economic data from the Eurozone's largest economy adds pressure on the ECB to ease. However their decision to do so next month will hinge on the market's reaction to the outcome of the EU Leaders Summit at the end of the month. If investors are disappointed, the ECB may have to sweep in like a white knight but if EU Leaders finally deliver, they could hold for a few more months.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Jun 25 9:31 AM | Link | Comment!
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