There are five major economic indicator reports that Forex traders pay strong attention to, and the Trade Balance Report (also referred to as a Balance of Trade Report) is one of those major five. The Trade Balance report measures the difference between a nation’s imports and a nation’s exports.
A positive number (surplus) means the country is sending out more than it is bringing in, while a negative number (deficit) means the nation is bringing in more than it is sending out.
This can be a major indication of how a nation’s overall economy is doing.
Don’t let those terms trick you, a trade deficit is not necessarily a bad thing. That can be a sign of increased consumer buying, meaning that the deficit may simply be a result of a strong economy that gives the average consumer a lot more money to spend.
This report often times will have a major impact on GDP and can influence the value of a currency, making it important to Forex traders.
This report can give a lot of information that will be helpful in determining how one nation’s economy is doing versus another, but knowing what to look for is important. For example, the United States has had a trade deficit for over 20 years, but no one is going to argue that the economy in the late 1990s wasn’t much better than the late 1970s.
A deficit can be bad or good, or sometimes a little bit of both. It just depends on how that report fits into the overall situation.
Part of the reason for such a long deficit is that the U.S. economy kept expanding during all that time, and other nations have not been able to keep up the same pace. As other nations catch up, this could change. The main concern that worries some people is what is going to happen long term if more money keeps flowing out than coming back in. This is an issue for another report.
The Trade Balance report can move the Forex market, and is interesting because it may be the least predictable from month to month of all the major reports, meaning that it has more ability to surprise individual traders and cause a quick swing in a currency’s perceived value.
The trade balance report is one of the major reports, and learning to pounce on this information as it is released will help give you the edge you need in order to thrive in Forex trading.