Balance of trade figures are another important facet of fundamental economic analysis. The trade balance compares exports versus imports for a given economy – sometimes the figures are broken into separate balances covering goods and services

Positive
A positive balance of trade = exports higher than imports. Exports good – money coming into an economy, a trade surplus.

Negative
The opposite of this is a trade deficit, or trade gap – more goods are being imported the exported. Imports bad – money going out an economy to pay for them.

Balance of trade has historically been a critical issue in the Japanese economy, which is heavily based on exports. The financial management of the economy is geared towards stimulating exports wherever possible – keeping the value of the Yen low, low interest rates etc. – so JPY tends to be more sensitive to good/bad balance of trade figures than other currencies – on average…

Japan is a good example of a mature economy and these always tend to run a trade surplus – other examples include Germany and Canada, (sometimes unfairly referred to as stagnant economies), running generally at a lower expectation of growth. But the strong growth economies eg. United States, Australia run regular trade deficits, simply to fuel this growth.

When it comes to pure economic theory – as usual, economists are divided. Some say that trade deficits have to be tackled as they will inevitably bring an economy down, others say it’s a necessary evil to stimulate some growth, and a few even reckon a trade deficit matters not at all…

The markets, however – and it’s always the markets we’re interested in when it comes to forex trading – will tend to go classic picture, trade surplus good, trade deficit bad.

… Everybody is just standing there, blinking furiously – waiting for someone not to blink …

With the panic on, they’re all getting liquidity back and any movements are largely a function of who’s got more to clear out and how fast they can do it.

There’s no bank around at the moment who wants to be seen as lacking capital reserves, the spotlight falls on them and that can be self-fulfilling…
Continue reading »