US trade balance and EUR/USD
Unlike trading based on technical analysis, almost all entries into a position using a news robot
have an economic justification.
However, not all news has the same impact on the market, and many often mistakenly associate the degree of importance of the news and the possible reaction of the trend to its release.
After reading the fundamental analysis section of our website, you can see that sometimes obvious news like GDP may not have as strong an impact as many write and claim.
Thus, finding out the real reaction of the market to the main macroeconomic indicators can open the eyes of many beginners who have embarked on the path of studying fundamental analysis.
The trade balance is one of the macroeconomic indicators, thanks to which traders and investors can evaluate the economic activity of the state in the international arena. More specifically, the trade balance is nothing more than the difference between the exports and imports of goods and services of a certain state over a certain period of time.
Thus, by comparing the import and export of goods, a trader and an investor can form a common opinion about the country’s economy. It is considered that if the balance is negative, then the number of goods that are imported exceeds exports, which often indicates an uncompetitive economy and its industry.
A positive balance, on the contrary, indicates that the state has a strong economy and a competitive industry, thanks to which the state fully covers domestic needs and exports to other countries. You can find approximately this description on almost any Forex resource, but there are a number of subtleties that no one talks about.
So, for example, the US trade balance always has a negative value, and if you rely on the logic of textbooks on stock trading, you get the opinion that the US is a backward country. However, few people clarify that the United States is actively transferring labor-intensive production to other countries where wages are very low, which allows the United States to earn large sums of money at lower costs.
The release of news almost always has an impact on dollar currency pairs traded on Forex, however, before taking this indicator into account when trading, let's look at the real reaction of the trend to the release of data for the last four months and draw some conclusions about the possible profitability of trading on this indicator on the foreign exchange market. pair EUR/USD.
On 07/07/2015, almost everyone expected a reduction in exports and an increase in imports of goods, and if in the previous month the trade balance was -40.70B, then in fact data was received at -41.87B.
A fall in product exports indicates a weakening of some sector of the economy, so we can assume that the chart of the EUR/USD currency pair will go up due to the weakness of the USD. The behavior of the crowd can be seen in the picture below:
The crowd's reaction to the publication of the data was quite natural, so we can observe a strong increase in the chart by 120 points.
The news had a fairly strong impact on trading participants, as the chart rapidly gained height over the course of 7 hours. The end of the news was abrupt, just like its beginning. On August 05, 2015, extremely negative data was released, which indicates a decrease in the trade balance, or, more simply, in the export of goods.
If in the previous month the value was -40.94B, then at the output we received -43.84B. Such a significant deterioration should immediately be expressed in the form of a strong upward movement in the chart of the EUR/USD currency pair. The crowd's reaction can be seen in the image below:
The image shows that the market practically did not react to such strong news and moved only 21 points within one hour, after which there was a strong reversal towards positive news for the dollar or negative news for the euro.
On 09/03/2015, all market participants could observe a significant increase in the US trade balance, which amounted to -41.86B compared to the previous month's figure of -45.21B. Such a strong positive change indicates a strong increase in exports of goods from the United States and a strengthening of the USD, so there should be a strong drop in the chart of the EUR/USD currency pair. The consequences of the data release are shown below:
Traders reacted aggressively to the release of positive data on the dollar, so the chart shows a drop of 140 points within 2 hours and 30 minutes.
The news ended with the formation of a sideways trend. On 10/06/2015, disappointing data of -48.33B were released, which indicate a strong increase in imports of goods and a sharp decrease in exports.
The market should react strongly to such a difference between the last month and the current one and move the EUR/USD chart up. The movement of the chart at the moment the indicator is released is shown in the picture below:
The chart shows that initially the market simply ignored the news and went against it, but after 15 minutes it moved the chart up by 57 points with renewed vigor. The effect of the news lasted 7 hours, after which the market began to slide into a narrow flat.
Having analyzed all four options, a bold conclusion arises that the news really works and has an impact on the movement of the EUR/USD currency pair. However, it is worth noting that in each of the options the price covered a very different distance from 20 points to 140, so it is difficult to say exactly how long the price travels after publication, but the fact that there is a pattern in its development is unambiguous.
A significant factor in the use of this indicator in Forex trading is that the news works itself out over a fairly long period of time, and does not shoot out in one candle, as happens with weak economic indicators.