The report on the US trade balance is published every month and is one of the most important market sentiment indicators on the state of the US economy, along with the report on employment and the report on employment in the non-agricultural sector. The trade balance shows exports ratio and the country of import. A change in one direction or another may have implications for the exchange rate.
The trading balance can be positive or negative.
The negative balance of trade is considered in cases where the gross imports during the period exceeds the total exports from the country. In other words, the country imported more goods than it sells abroad. This is a negative factor, as the country is unable to provide its home market with everything you need.
The positive balance of trade is considered in cases where the total exports for the period exceeds the gross import into the country. Thus, the country sells a large number of goods abroad and the domestic market is provided with everything necessary. This has a positive effect on the exchange rate, as it indicates that other countries are interested in the exported goods and, consequently, in the currency of the exporting State, which strengthens the currency.
What is so useful in a positive trade balance for the country? Ensuring country has a high potential for economic growth, as it has sufficient resources, as well as the huge profits from the sale of its own products. In this regard, Forex brokers and economists increasingly prefer monthly reports show a surplus.
Responsibility for the provision of the monthly report lies with the Bureau of Economic Analysis, under the leadership of the US Department of Commerce. By providing the report, the activity of BEA begins, it is this service should conduct an analysis of previous reports and calculate the rate of growth or decline of exports.
Sometimes the process can take quite a long time and therefore are not necessarily all of the data available in a strictly scheduled time. In principle, as well as other reports on the economic situation of the country (i.e. United States N Nonfarm Payrolls)
How the report affects the FX
When it comes time for the release of the US trade report, currency traders try, as soon as possible to keep track of reports. Because on this basis they will trade and hedge their positions. Those who are just starting to play the market, it will be useful to get acquainted with where offer their services "Reliable binary options brokers".
After all, for foreign exchange investors plays a big role this report, because it will show how the dollar will behave in the long term. If the balance is positive it contributes to the development of the economy and as a consequence increase production. This means that the price of the currency will increase due to increased consumer demand for the dollar. And as a consequence of the growth of the dollar will increase the interest in acquiring it, which in turn will only strengthen the country's economy.
But at the same time helping to reduce the negative balance of the price of the dollar, which would entail a reduction of interest rates by the Federal Reserve. In addition, the decline in the price of the dollar will increase the probability of deceleration of the US economy, which in turn will result in the near future decline of some sectors of the economy. At this time, the dollar will be sold extensively to reduce the assets of the currency.
It is in this context currency traders, both technical and fundamental analysts, are very attentive to the fact that the reports show the US economy because through them you can make a fairly accurate predictions of how it will behave currency in the near future. (For details on how to import and export impact on the economy, read the materials, "Understanding the current account of the balance of payments"). To select a broker you need to visit "Forex broker comparison" section and compare the brokers for all submitted items.
Investors always consider the trade balance report as a forecast for the market sentiment in the near future. We can say that the report is something of a prediction component for traders. The only investor in this case, considering the report and its data as a reason to buy or sell a particular currency unit. Long-term market players often decide to report based on how much you need to cut back on currency positions. For those who wish to get acquainted with the offer of services market, all information presented in the section "PAMM Forex brokers rating".
How it works
To understand how it looks in action you need to look at the examples on the exchange rates EUR / USD (euro against US dollar rate).
The euro and the dollar experienced pressure and were at the peak sales period in the beginning of June in 2011 in connection with the financial crisis in Europe and a relatively artificial debt default in Greece. Short-raiders have rated it as a threat to the course and began to rapidly sell the dollar in favor of the euro currency. This continued for two sessions feast output financial report. If the trade balance showed a surplus, it would be a great opportunity to continue to trade the pair EUR / USD.
June 9, showed that the situation is not as critical as expected and the loss amounted to only 44 million dollars. This meant that the balance was positive and the dollar would stabilize its position.
Figure 1: Traders forecast in accordance with the report of the trade balance. Resistance level 1.4630
Due to the fact that short positions EURUSD found resistance 1.4630 and stayed above 50 points, traders made a profit per operating day about 150 pips.
Selling is becoming more competitive, as the exchange rate continues to fall to 1.4350 before getting support at this level. Useful information on how to choose a broker located in the section «How to choose a Forex Broker?».
Market sentiment in July 2011
In July 2011, the market suffered a mood change. Investors and traders are also concerned about the future European financial crisis. It began to appear information about the critical level of US debt. So, any negative news will increase pressure on the US dollar and the country's credit ratings continue to decline.
Short-term traders have already seen that a technical analysis showing falling EUR / USD pair confirmed a downward trend line break (1.4320-1.4044). A break of this level would signal that the momentum has changed and there is potential growth in the pair.
And it happened so. A few hours before the release of a pair of exit passed the resistance level and began to move in the growth.
Long term traders are already receiving a good profit, as by this time the pair passed the mark of 1.4052. Thereby bringing profit of 100 pips. Medium-term traders had to see how the couple was held at the level of 1.4100.
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Taking into consideration these examples, we can see that the application of the report of the trading balance of the country helps to make accurate predictions for the trade and to predict exchange rates more accurately.
Learn more about the balance of trade through the example in the video: