Forex News Recap (12/10) - US Trade Data Helps Lift USD, Is US Recovery For Real

To end this week's trading we saw the USD gaining following a blow-out US Trade report. It begs the question is the USD recovery for real?

Overnight, the USD was softer as yields had fallen to end Thursday's US trading on a 30-year auction of US Treasury action that saw good demand. The main stories overnight was a positive Chinese trade balance report but also another 50 basis point bump up by China's central bank of the country's bank reserve requirement ratio. It's the 3rd time they've done so in the last month, and that rate is now at 18.5%. This is meant to mom up excess liquidity.

In Europe, there has been little headway in terms of crafting a long-term solution for the sovereign debt crisis, and Euro-zone periphery country's yield spreads with Germany rose yet again. That pressured the Euro.

Coming into the NY session, the USD was soft but ready to gain if the trade balance report came in better than expected. And did it. It was the best figures since January as exports rose to a 2-year high. Also we had a second report showing US consumer confidence increased in December. The trade data is a positive for US growth and it helped to increase demand for USD on a "US recovery story."

US Trade Data

Let's talk a bit more about the trade data. It shrank more than forecast as a weaker dollar and strong demand from emerging markets helped increase exports. As I mentioned exports hit a 2-year high. Overall the trade gap totaled $38.7B - the lowest since January, which was lower than the lowest estimate of 78 economists surveyed by Bloomberg. That was a 13.2% smaller deficit than in September ($44.6 billion).

Exports rose 3.2% to $158.7 billion in October, the highest level since August 2008, just before the start of the global financial crisis and subsequent recession. Exports to Mexico and China were at record amounts and also strong demand from other countries like Brazil and South Korea.

Imports fell 0.5%.

This report is important because trade has been a strong net negative on US growth. Trade chopped a whopping 3.5% out of growth in the second quarter and was a 1.8% drag in the third quarter. TD Securities strategists said U.S. GDP in the fourth quarter is now likely to rise by 2.6%, compared with a previous forecast of 2.1%, after the report. And trade if not a net positive, will not take off as much growth as it did earlier in the year.

China Trade

Speaking of trade data, I did mention China trade balance, which came in better than expected as well.

The surplus for November stood at $22.9 billion in November, shrinking from $27.1 billion in October but coming in above the $22.3 billion surplus expected by analysts.

Exports jumped 34.9% in November from the year-ago period. That was higher than the pace in October, and much higher than the 22.4% increase expected.

That's a strong signal for global recovery.

But imports grew at an even faster pace, 37.7%, ahead of October's 25.3% increase and expectations for a 24.5% expansion.

That shows that China is starting to consume more, some of that badly needed global re-balancing we had talked about during the G-20 meetings a few weeks ago.

Over the weekend we get plenty of Chinese data including an important inflation report. There is always the chance the central bank could raise interest rates as well. So, important to gauge what happens with the news there over the weekend.

For the rest of the transcript: please visit:
http://www.fxtimes.com/video/fridays-forex-news-recap-1210-us-trade-data-help...

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• forex trading
• fx
• us trade data
• china trade data
• consumer confidence
• treasury yields
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• usd/jpy
• gbp/usd
• us economy
• federal reserve
• quantitative easing
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