Tag: Imports

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Forex Fundamental Analysis

‘Imports by Country’ – How Crucial Is It To Know About This Fundamental Forex Driver?

Introduction Currency values are critical for international trade and vice-versa. The exchange rates are directly influenced by changes in import and export composition, quantity, and prices. The volatility of a currency is directly associated with the country’s import and export relations with other countries. Understanding how international trade affects currencies in the forex market is […]

Introduction Currency values are critical for international trade and vice-versa. The exchange rates are directly influenced by changes in import and export composition, quantity, and prices. The volatility of a currency is directly associated with the country’s import and export relations with other countries. Understanding how international trade affects currencies in the forex market is […]

Introduction

Currency values are critical for international trade and vice-versa. The exchange rates are directly influenced by changes in import and export composition, quantity, and prices. The volatility of a currency is directly associated with the country’s import and export relations with other countries. Understanding how international trade affects currencies in the forex market is paramount for fundamental analysis.

What are Imports by Country?

A country’s trade balance (net exports and imports) is critical for currency valuation. The Balance of Trade refers to the required balance to exist between the total monetary value of a nation’s exports and imports. It is key to currency valuation. When a country exports, domestic currency comes into the country in exchange for the sale of products. When a country imports, the currency goes out in exchange for purchasing goods outside the country. Hence, a balance of exports and imports to maintain a healthy economy.

It is often necessary to understand a nation’s export and import composition to grasp its ties with other countries. Countries’ dependency on goods and services from other nations induces leverage and power for the exporting countries. For example, the United States imports 20% of all its goods from China. If China were to cut-off all its exports to the United States, that would dramatically impact the United States economy and its currency. Hence, the categorization of imports based on country and goods gives us an idea of the underlying relationships between currencies.

United States Imports by Country 

Source: Trading Economics
How can the Imports by Country numbers be used for analysis?

Today’s global world is one that is tightly interconnected and has complex links amongst countries. Understanding trade composition helps us in identifying where to look for volatility. For instance, the United States only imports about 2% of its products from India. If, for some reason, the import prices changed from India in either direction or completely stopped, it would not impact the trade balance significantly.

Hence, categorization based on countries helps us understand the dependencies a particular country has. Heavy dependence on a limited set of countries, especially for primary resources like energy and food, is not suitable for the economy. During times of a natural disaster in the exporting country will affect the dependent countries also.

A country that solely depends on its trade relations with fewer countries is likely to see more volatility in currency valuation. The more diverse the portfolio of a country in terms of its international trade partners, the more robust the currency is. Hence, currencies like the AUD, CAD are more volatile currencies because their exports are heavily dependent on fewer markets, unlike the EUR and USD.

Imports and Exports by country and category of products are equally essential to understand a nation’s currency volatility. For instance, Australia’s heavy dependency on coal and iron ore exports to china and japan induces volatility in AUD currency in correlation with coal and iron ore prices.

The Imports by country is not an economic indicator but is a prerequisite for understanding macroeconomic analysis of currency pairs. Currency valuations are primarily affected by trade relations a country has. It is not frequent for a country to change its import composition by country often, but it has a significant impact on the currency when it does.

Imports form only one half of the equation. Overall to understand the macroeconomic dynamics, both exports and imports have to be taken into account. Also, currency value change has a direct effect on imports and exports. When the Domestic currency appreciates imports are cheaper and profit margin increases for importing companies but hurts exporters as they receive fewer dollars than before. When the domestic currency depreciates, imports get hurt while exporters benefit. Some countries competitively peg their currency lower during export and higher during import. This phenomenon is sometimes referred to as “currency wars.”

Changes in import and export composition as a result of trade agreements or tariffs imposed has a more direct impact on companies that constitute the import and export goods and services. Hence, stock prices of companies are more sensitive to import and export data.

Impact on Currency

Imports categorized based on countries is for segregation and analysis purposes only. It is not an economic indicator in itself. Still, it is essential to understand the existing trade partners of a country to know which currencies are being exchanged for what goods. Imports and Exports both make up the balance of trade, which helps to analyze currency valuation.

Hence, Imports categorized by country are although useful, changes in the composition are necessary for a macroeconomic picture but does not induce volatility in itself. Any change in composition would have already been announced in news reports that would be priced into the market. It is useful at the starting point for establishing currency analysis, but it is neither an economic indicator nor induces any volatility in currencies.

Economic Reports

For the United States, The Census Bureau tracks and consolidates import and export composition on its official website. It releases monthly data ranking countries with which it had exports and imports. It details all the goods and services that are exported or imported from the partner countries.

Sources of Imports by Country

Census Bureau’s Trade highlights reports are available here. We can find a consolidated listing of “Imports by country” of most countries on Trading Economics.

Imports by Country News Release – Impact on Price Charts

Imports by Country is an important piece in analyzing the “Trade” and “Imports” fundamental indicators. It alone is not an economic indicator but is one of the components that make up a fundamental indicator. Precisely, the balance of trade is the economic driver that references the data obtained from Imports and Exports. Extending further, the data from Imports is acquired from factors like Imports by Country and Imports by Category.

Imports by Country alone does not pump up the volatility of the market. Also, the report is released during the release of the Imports data.

Imports Report – Untied States

United States Imports by Country

The USA is the second-largest importer in the world. The imports of the USA are China, the European Union, Euro Area, Canada, Mexico. For the May data, the overall imports dropped from $200.9 billion to $199.1 billion. Imports from China and Canada increased the previous month, but the rest saw a slight decline.

NZDUSD – Before the Announcement

In the below chart of NZDUSD, on the 4H time frame, we can see that the market is in an uptrend. It made a high to 0.65815. Since then, the price has been retracing.

NZDUSD – After the Announcement

On the day of the report announcement, the NZD showed strength, while USD showed weakness. However, the volatility and volume remained average. In the following days, the bullishness remained intact. In fact, after consolidating for a while at the resistance, the price made a new high. Thus, we can conclude that the Imports by Country indirectly did affect the USD price.

AUDUSD – Before the Announcement

From the price chart of AUDUSD, we can see that the price action is similar to that of NZDUSD. Before the announcement of the news, the market was in a strong uptrend.  After making a high to 0.69845, the prices have been pulling back down.

AUDUSD – After the Announcement

During the announcement of the news, the market volatility was unchanged. However, in the subsequent sessions, the market reacted negatively on USD, and the price touched the recent high and even made a higher high. The market perhaps did react as expected to the new, but in the later weeks.

USDCHF – Before the Announcement

Before the announcement of the news, the market was in a pullback phase of a downtrend.

USDCHF – After the Announcement

On the announcement day, the volatility of the market was feeble. The price pushed to the downside but with low volume that is typically seen during the announcement of major news events.

In the following trading days, the predominant downtrend continued where the price made a new low from 0.93828. This down move could be due to several factors; however, there could be a slight effect on the Imports by Country report. Cheers!

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Forex Fundamental Analysis

Imports by Category – Comprehending This Forex Fundamental Driver!

Introduction Understanding the portfolio of an economy’s exports and imports can help us track down the fundamental moves in currencies. Tracking imports and exports can help speculators ride the fundamental wave of currency value change in their favor. Imports and Exports are critical components of a nation’s trade balance. The deeper our understanding of these […]

Introduction Understanding the portfolio of an economy’s exports and imports can help us track down the fundamental moves in currencies. Tracking imports and exports can help speculators ride the fundamental wave of currency value change in their favor. Imports and Exports are critical components of a nation’s trade balance. The deeper our understanding of these […]

Introduction

Understanding the portfolio of an economy’s exports and imports can help us track down the fundamental moves in currencies. Tracking imports and exports can help speculators ride the fundamental wave of currency value change in their favor. Imports and Exports are critical components of a nation’s trade balance. The deeper our understanding of these dynamics, the better will be our understanding of macroeconomic trends.

What are Imports by Category?

Imports: They are the goods or services purchased that were produced outside the domestic country. Imports are purchased goods or services from foreign markets. Imports are required for many reasons and inherently constitute a nation’s trade balance. In importing, foreign goods or services come into the country while domestic currency goes out into the international market. A country in general imports when it is more efficiently produced or is cheaper in other countries. It may also import when the nation is unable to produce or meet the required demand.

A country will have numerous corporations that would have requirements for foreign goods or services, and hence the country’s valuation of imports would be in millions and billions. Hence, while importing millions and billions of domestic currency goes into foreign markets where currencies are exchanged for various reasons. Suppose a country wants to import goods or services from another country. It generally pays it in the exporting country’s currency. Hence, during export, currency comes into the country, and products go out, and during imports, the currency goes out, and products come in.

How can the Imports by Category numbers be used for analysis?

When a country’s imports exceed its exports, it is said to have a negative trade balance or trade deficit. Based on the geographical location, technological and business setups, different nations will have a competitive edge in different sectors. For instance, countries like Venezuela, Canada, or Middle Eastern countries are naturally sitting on abundant oil reserves. Hence, it will export oil to countries that do not have such reserves.

Companies may often require raw materials that are more cheaply available from other countries. For instance, companies in the United States might import electronic goods from China, which is cheaper. Hence, such companies may put up bulk order imports and trade takes place. Hence, what a country needs it may import and what it produces it can export.

The international market is decentralized and operates through free-market forces that keep economies in natural equilibrium. Currency exchanges can take place for genuine business transactions or speculative purposes also. When exchanges occur for purely business reasons, we call them fundamental moves in the currency pairs. These fundamental moves give currency their volatility along with speculation from investors.

Understanding a country’s Imports by the Category of products can help us track the fundamental moves. When significant transactions related to import or export takes place, it induces volatility into the currencies. During a considerable import, the international market is flooded with importing the country’s currency, and due to supply exceeding demand, the currency value falls.

On the other hand, when a country exports a massive volume of goods, the corresponding transaction would withdraw a large sum of that country’s currency out of the international market. When demand exceeds the supply, the currency value appreciates. Scarcity appreciates value and oversupply reduces value. Hence, a country must maintain a “balance” in its trades, i.e., the monetary value of all its imports and exports should ideally cancel off. In reality, it is not so, and this imbalance in different country’s trade balance gives currencies the volatility which traders are always looking to capture.

Understanding the economy’s portfolio of imports can help policymakers also in identifying exceeding dependencies in other countries. Too much reliance on foreign countries for goods or services is not suitable for the economy. The more a country is dependent on other countries, especially for basic needs like energy and food, the less it has control over its economic growth and currency valuation.

Countries that depend on fewer categories of imports and exports have more concentrated risk in terms of currency volatility. Countries like AUD and NZD show more volatility in general than currencies like USD and EUR because of the diverse portfolio of exports and imports of the latter currencies.

Impact on Currency

Imports by Category of goods or services is not an economic indicator, but it is necessary to facilitate an understanding of international trade balance amongst currencies. It directly does not impact any currency volatility but is a requisite to base trade analysis amongst currency pairs. Changes in imports by Category does not frequently change as most trade agreements are made for multiple years on end. Any changes in trade composition in terms of Category will be priced through leading economic indicators and news releases.

Economic Reports

In the United States, the Census Bureau tracks the import and export data categorized by trade partners and products. The lists are ranked based on trade volume, deficits, and surpluses, etc. Monthly and year-to-date data are two types listed for all its trade partners.

Sources of Imports by Category

We can find the Census Bureau data on its Top Trading Partners. We can find the percentage of statistics consolidated for most countries for imports by Category on Trading Economics.

Imports by Category News Release – Effect on the Price Charts

Both Exports and Imports are fundamental indicators that vaguely impact the forex market. The Imports report is calculated by considering the Imports by Category and Imports by Country. Reliable results are obtained when they are combined. Thus, to analyze the impact of Imports by Category, we shall be taking into account the Imports number as well.

Level of Impact

The Imports by Category report released by the Australian Bureau of Statistic has minimum to negligible impact on the value of the Australian dollar.

Imports data – AUD

The Imports report published on July 02, 2020, stood negative 6%, beating the previous number -10%. Even though the numbers are not up to the mark, they have recovered to a great extent from the previous month’s readings.

From the below chart ranging from 2016 to 2020, the Australian Imports hit a new low to -10% for the May report. However, it shot up 4% higher the following month.

Imports – Australia

Below is the Imports by Category for the top five categories in imports. We can see that four out of five categories saw a drop from the previous report.

AUDUSD – Before the Announcement

Focusing on the left side of the chart, we can see that the market is in an uptrend and is currently consolidating.

AUDUSD – After the Announcement

On the day of the report release, the impact in the volatility of the currency was insignificant. However, later through the month, the Australian dollar got stronger and continued its uptrend. This indicates that, despite the disappointing number overall, the AUD saw strength as the number beat the previous month report by a significant margin.

AUDCAD – Before the Announcement

Before the news released, the market was in a range for an entire month.

AUDCAD – After the Announcement

On the day of the announcement, the market tried to inch above the top of the range but failed. However, in the subsequent trading sessions, volatility picked up, and the price made a higher high. Hence, we can, to an extent, conclude that the AUD had a positive impact on the Imports by Category numbers.

AUDJPY – Before the Announcement

In the below chart of AUD/JPY on the 4H time frame, we can see that the market is in a strong uptrend. It made a high to around 77.000. The prices were in a pullback phase, the whole month of June.

AUDJPY – After the Announcement

On the day of the report announcement, the market barely had any impact in terms of volatility. That said, in the following weeks, the price rallied up to the previous high of 77.000, indicating AUD strength.

Therefore, we can conclude that the Australian dollar had a feeble effect during the news release day but did have a positive impact on the report in the subsequent trading sessions. Cheers!

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Forex Fundamental Analysis

The Significance of ‘Imports’ Data In Determining A Nation’s Economy

Introduction

Introduction

Introduction

Imports are one of the components of International Trade. The Import and Export figures determine whether a country is running a Trade Surplus or Deficit. What and how much a country is importing in contrast to its exports mainly drives economic growth. It is crucial to understand Import’s role in a country’s International Trade Balance and Balance of Payments and its pros and cons.

What is Imports?

The foreign goods and services sold to domestic consumers are called Imports. Goods and Services manufactured in a foreign country consumed by the domestic population all come under Imports. When a country is importing more compared to its exports, it is said to have a trade deficit. A trade deficit is generally bad for the economy as it means it is consuming more than it is earning.

An import is noted as a debit in the Balance of Payments in the Current Account Balance Reports. When a country imports money flows out of the country. An export brings money into the economy. Hence, Import is analogous to an individual’s monthly expenses, and exports are analogous to his income. It is not ideal for us to spend more than we earn for long periods as it could pile up a massive debt from which we may not be able to recover. A country running a trade deficit is no different.

A country needs to borrow capital to finance its excess import or net import (imports minus exports). It is always preferable for mature economies to be a net exporter than a net importer.

A trade deficit is not a bad thing always as countries might be importing raw materials for future projects and constructions whose output is not yet recorded. The United States has continued to be a net importer and has been running a trade deficit since 1975. Hence, what a country is importing and for what purposes is vital to understand its implications on the economy.

How can the Imports numbers be used for analysis?

A country imports generally the goods that they either cannot produce domestically or as cheap as other countries. Countries that naturally do not have the natural resources may import their raw materials from nations that are abundant in it. For example, China imports Iron Ore, which Australia exports for its manufacturing industries.

Countries may also import goods for which labor cost is expensive in the home country compared to other countries. For example, NAFTA agreement shifted Car and Automotive parts manufacturing to Mexico from the United States and Canada due to cheap labor availability.

Countries also often import goods and services in which they do not have a competitive edge in the global market. For example, even though Apple is an American Company, its production of phones is done in China as the production cost is low due to well-established infrastructure for electronic and chip manufacturing industries.

Imports are to be offset by corresponding levels of exports ideally, otherwise end up having a trade deficit which can be harmful in the long run. As the country keeps borrowing, the piling debt slowly starts crippling the economy as much of the revenue goes into servicing interest payments and debt repayments in the long run.

The heavy dependence of an economy on imports from a particular foreign nation or small group of nations can be dangerous as the economy’s function becomes dependent on the trades. It would be more crippling if the Imports are necessities like food or energy. For example, the USA faced an oil shortage and went into recession when OPEC cut its oil supply to the USA.

Imports are subject to trade tariffs and trade agreements. Imported goods and services compete with local produce, and the selling price of the corresponding goods differs based on the import tariffs implemented by the Government.

On the one hand, importing goods at a lower price rather than producing domestically at a higher price seems reasonable to some as it gives consumers goods and services at a lower rate avoiding inflation effects. On the other hand, imports affect the local manufacturing sectors in the same category. Foreign Competition can wipe out local businesses, which can, in turn, slow down the economy.

In the long run, exports stimulate growth while imports impede growth. Hence, Import is a double-edged sword that needs to be handled carefully in conjunction with exports to strike a correct-balance in the Balance of Trade.

Impact on Currency

When a country imports the country pays for it, and hence currency flows out of the country. When a country’s imports outweigh its exports (net importer), the domestic currency is in oversupply in the global market, and hence currency value depreciates.

A sudden surge in imports over exports is followed by currency depreciation and vice-versa. The global FOREX market is self-regulating and adjusts to such shocks, and the Government can intervene to peg their currency higher to reduce the cost of imports. Japan and China are good at winning this type of Currency War games in the global markets where they peg their currency high during imports and low during exports to maximize benefits in their favor.

Economic Reports

Imports form part of a country’s Balance of Trade, which is reported under the Current Account Balance part of the International Balance of Payments Report of the country. The Balance of Payments report is released quarterly and annually for most countries. The Balance of Trade reports are published every month, which consists of Exports and Imports figures.

For the United States, the Bureau of Economic Analysis publishes the monthly Balance of Trade reports on their official website in the first week of every month for the previous month.

Sources of Import Reports

Data related to U.S. Imports can be found here. The World Bank also publishes the World Trade reports of many countries categorized by different sectors in their World Integrated Trade Solution’s official website. We can also get the statistical data of Imports and Exports of various countries from the International Monetary Fund’s official website.

Visual representation of a country’s imports can be accessed here. Below is the illustration of the same. 

Impact of the ‘Imports’ news release on the price charts 

Until now, we have learned all about imports and the different ways it can affect the economy and the currency. Imports offer many benefits to the consumer of the importing nation, such as greater choices, a wide range of quality, and access to lower-cost goods and services. Imports create healthy competition in the domestic market, forcing local producers to improve their quality or by reducing costs. Therefore, if imports are kept at a reasonable level, they can be beneficial to companies, consumers, and the economy. We need to change the method in which the value o trade is measured.

In today’s illustration, we will be analyzing the impact of Imports on different currency pairs and see the change in volatility before and after the news announcement. The below image shows the latest Imports data of the United States, where it says that there has been a reduction in the net Imports from the previous month. Let us find out how the market reacts to this data.

USD/JPY | Before the announcement:

The first pair we will be discussing is the USD/JPY currency pair and where the above image shows the state of the chart before the announcement. We see that the market does not appear to be moving in any single direction, which means there is volatility on both sides, and there is confusion prevailing in the market. Traders need to watch the impact of the news announcement and then take a suitable position.

USD/JPY | After the announcement:

After the news announcement, the price sharply falls lower, and volatility expands on the downside. As there was a reduction in the value of Imports, the market reacted negatively to this data by causing weakness in the U.S. dollar. The long bearish ‘news candle’ is an indication of the continuation of the downward move, and so, one can take a ‘short’ position in the currency after the news release with a stop loss above the recent ‘high.’

GBP/USD | Before the announcement:

GBP/USD | After the announcement:

The above images represent the GBP/USD currency pair, where we see that, in the first image, the market again is not trending in any direction, and currently the price is at the ‘supply’ area. Therefore, we can expect sellers to come back into the market and stimulate selling pressure. Since the impact of Imports data is moderate to high, it is advised to wait for the news release to see what changes it will cause in the price. After the news announcement, there is a sudden surge in the price where the ‘news candle’ closes with a fair amount of bullishness. Since the U.S. dollar is on the right hand of the pair, a rise in the price indicates weakness in the currency. As the Imports were lower, traders increased the volatility to the upside by selling a lot of U.S. dollars. From a ‘trade’ point of view, we will go ‘long’ in the market only after the price breaks the ‘supply’ area and moves higher.

AUD/USD | Before the announcement:

AUD/USD | After the announcement:

The above images are that of the AUD/USD currency pair, where we see that the market is in an uptrend, and at present, it looks like the price on the verge of continuing the trend after a price retracement. The price is currently at the previous ‘high,’ so we can sellers become active at this point. Thus, we should not take any position before the news release. After the news announcement, the price goes higher and closes as a bullish candle. As the Imports are relatively weak, traders sold U.S. dollars and increased the volatility to the upside. This could be a confirmation sign of the continuation of the trend. Aggressive traders can take ‘long’ positions with a stop loss below the recent ‘low.’

That’s about ‘Imports’ and its impact on the Forex market after its news release. If you have any questions, please let us know in the comments below. Good luck!

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Forex Fundamental Analysis

What Is Balance Of Trade & What Impact Does It Have On The Forex market?

Introduction

Introduction

Introduction

The Balance Of Trade AKA. BOT is essentially the difference or variance in a nation’s export and import. When understood correctly, this indicator can help us in evaluating the relative robustness of any given economy compared to the other ones. 

Understanding Balance Of Trade

In the simplest of analogies, consider a scenario where a rice seller sells $1000 worth of rice to other grain sellers in the market over a month. Within that month, if he had purchased $800 worth of goods like vegetables, fruits, etc. from the other vendors, his Balance Of Trade would be $200.

Here, in this example, the market is the entire world, and the rice seller is equivalent to a nation. $1000 is the net worth of the exported goods and services that went out of the country, whereas the $800 is the net worth of the imported goods and services that came into the country. In this case, $200 is the trade surplus that the country is having.

Therefore, Balance Of Trade can be considered as a difference between what goes out (exports) and what comes in (imports) over a given time frame. And depending on whether exports or imports are greater, a nation is said to be running a Trade Surplus or Trade Deficit, respectively. Fundamentally, an Export is when a foreign resident or nation purchases an in-country produced good or service, and an Import is when an in-country citizen purchases goods or services from foreign.

How is the Balance Of Trade calculated?

In the previous article, we understood the formula of a country’s current account. That is, Current Account = (Exports – Imports) + Net Income + Net Current Transfers.

In the above formula, (Exports – Imports) is the Balance of Trade.

How Can This Economic Indicator Be Used For Analysis?

Investors can use Balance Of Trade numbers to ascertain whether the overall economic activity of a nation has grown or slowed down concerning the previous month’s/quarter’s/year’s numbers. For example, a country which has seen a trade surplus for let’s say over ten years, and due to some calamities, its exports got hit. The nation might enter into a trade deficit or a reduced trade surplus. Such a relative comparison can help investors to ascertain whether a country’s economy is booming or slowing down.

In an absolute sense, a Trade surplus or Trade deficit, as discussed, cannot tell in entirety. But it will definitely give us a macroeconomic picture of an economy’s health and what the nation has undergone in the present business cycle. Let’s assume a country is a major exporter of oil for which it receives a majority of its income. If the production of oil is doubled, automatically there will be an increase in the demand for that currency worldwide. This will result in an appreciation of that country’s currency.

Not just this, but the Balance Of Trade can also point towards many things like an increase in employment or an oncoming expansion or recession when viewed with correct perspective and analysis.

Impact of Balance Of Trade on Currency

By simply looking at the BOT numbers, we cannot conclude whether a nation is experiencing growth or slow down straight away. Because the Balance Of Trade only projects a partial picture and not the whole picture.

A developing country might want to import more goods and services from abroad, which increases the competition in their respective markets. Thereby they keep the prices and inflation low. During these periods, that country will have a Trade Deficit. To an outsider, it will only look like the country is consuming more than it is producing. So this scenario can be wrongly assumed as the country’s economy is slowing down. But in reality, what if the country is experiencing a trade deficit for the first six months and a trade surplus for the next six months?

Developed nations like the United States and the U.K. have experienced long periods of trade deficits against developing and emerging economies like China and Japan, who have maintained trade surpluses for long times. Hence, the time frame, business cycles, the relative situation with other countries all factor in to give a correct interpretation to the BOT.

But in general, most of the time, an increase in the Balance of Trade number is good for Currency. It is a proportional indicator, meaning. Lower or negative Balance of Trade numbers relative to previous periods signals currency depreciation and vice versa.

Balance of Trade & Balance of Payments

BOT is a major component of a Nation’s BOPs, i.e., Balance Of Payments. Balance Of Payments, ideally, should always equate to zero, giving us a complete account of all things traded in and out of an economy. A nation can have a surplus while having a trade deficit. This happens when other components of Balance Of Payments like Financial Account or Capital Account run into large surpluses.

But in general, countries prefer to have a trade surplus, and it is obvious. A country in net terms receiving a gain or profit for their goods and services would mean that the people of that country will experience higher wealth, and it would automatically result in a higher standard of living. And also, by continually exporting, they would develop a competitive edge in the global market. This would also increase employment within the nation, which, in general, is favorable for the nation. But as said, it is always not necessary for this condition to be true. It depends on what goals the country has in mind for future short term deficits also matters.

Hence Balance Of Trade is one of the important indicators for analysts to ascertain a country’s economic activity and current health of an economy.

Economic Reports

Since the Balance of Trade is about imports and exports, data for the same is publicly available on a monthly basis for all the countries. The reports are released in the United States by the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. The units would be typically in millions of dollars for most reports and for most nations. The popularly used reports are typically seasonally adjusted to give a more accurate report.

Sources of Balance Of Trade

To get the latest information about this economic indicator for the United States, you can refer to this link. To know all the diverse components involved in Balance Of Payments and International Trade, you can refer to this page from The Bureau Of Economic Analysis.

Impact Of ‘BOT’ News Release On The Price Charts

Now that we know the meaning of trade balance and how it affects the economy, we shall extend our discussion and understand how it impacts any of the currencies after the news announcement is made.

As we can see in the below image, the Trade Balance indicator has the least effect on currency (yellow indicator implies the least impact on currency). Hence, this might not cause extreme volatility in the currency pair after the news release. It is still important to understand the effect and look at how we can position ourselves in the market in such scenarios.

For illustration, we have chosen the New Zealand Dollar in our example, and we will analyze the latest’ Trade Balance’ data of the same. The data shows that Trade Balance was increased by 44M as compared to the previous reading, which is said to be positive for the currency. But let us see how the market reacted to this data after the announcement was made.

NZD/JPY | Before The Announcement - (Feb 26th, 2019)

The below chart shows that the overall trend is down, which means the New Zealand dollar is very weak. As said in the above paragraph that changes in Trade Balance of a country do not have much impact on the currency, so better than expected data can only cause a reversal of the trend. However, if the data is retained at previous reading, we can expect a continuation of the downtrend, and volatility will be more on the downside. We will be looking to trade the above currency on the ‘short’ side if the Trade Balance data is bad for the country since even positive data cannot push the currency higher.

NZD/JPY | After The Announcement - (Feb 26th, 2019)

After the news announcement, we see that the price crashed below the moving average, reacting to the not-so-good numbers of Trade Balance for New Zealand. The market participants were expecting much better Trade Balance data, but after seeing that it was increased by mere 44M, they were disappointed and hence sold New Zealand dollars. We can take advantage of this change in volatility by taking risk-free ‘short’ positions in the pair soon after the market falls below the moving average. We can hold on to our trade as long as the price is below the moving average and exit once we see signs of reversal.

GBP/NZD | Before The Announcement - (Feb 26th, 2019)

Here we can see that the New Zealand dollar is on the right-hand side, and since the market is in a downtrend, the currency is strong. In this situation, a risk-free way to trade this pair is by going ‘long’ if the Trade balance numbers are not good for the pair and after trend reversal signals. Since the downtrend is not very strong, we can take ‘short’ positions only if it breaks the recent ‘lows’ and shows signs of trend continuation.

GBP/NZD | After The Announcement - (Feb 26th, 2019)

After the numbers are out, we see the positive reaction for the New Zealand dollar as the numbers were better than last time, but it could not take it lower. Since the data was weak, we can ‘long’ positions in the pair once the price makes a ‘higher low’ after crossing above the moving average.

EUR/NZD | Before The Announcement - (Feb 26th, 2019)

The above chart represents the currency pair of EUR/NZD, which shows similar characteristics as that of the NZD/JPY pair but in reverse as the New Zealand dollar is on the right-hand side. In this pair, the New Zealand dollar is extremely weak, and we also the price is above the moving average showing the strength of the uptrend. Therefore taking’ short’ positions in this pair is not advisable even if the Trade Balance data is good for the New Zealand economy, as it is a less impactful event, and the reversal might not last. A better option would be to go ‘long’ in this pair.

EUR/NZD | After The Announcement - (Feb 26th, 2019)

After the news announcement, we see a red candle, and the price bounces off the moving average, continuing its uptrend. Since the data was not very positive, the market continues its uptrend, and thereby the New Zealand dollar weakens further. This could be the perfect setup for a ‘buy’ since all parameters are in our favor. The volatility here expands on the upside, after the news release.

That’s about the Balance of Trade and its impact on the Forex currency pairs. We just wanted to show how the markets get impacted after the news release. It is always advisable to combine these fundamental factors with technical analysis as well to ace the Forex markets. Cheers.