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US Trade Deficit Shrinks – What Does It Mean?

The US trade balance deficit shrank from $49.5 billion to $43.6 billion this month. It´s not a lot if you look at the historical chart, but it´s considerable for just a month's time. This is especially true if you take into account Trump´s goal to bring all the businesses back home.

It´s too soon yet for a trend to form

A narrowing trade deficit doesn´t necessarily mean the domestic economy is doing well. The shrink in trade deficit might come from lower trade activity. When exports fall but imports fall even more, it looks great at first glance as trade deficit declines but it's not good for the economy.  

However, this is not the case this time. In our case imports have gone up by 0.2% while exports have declined by 0.8%, so it must be the right kind of deficit shrink, right?  

Again, I´m not really sure about this because the imports from China make up for a large part of the decline (exactly $20.8 billion). However, exports to China have fallen as well.

In my opinion, it´s too soon to call this a Trump victory and the USD is not convinced either. Apart from USD/JPY which has made a small run to the upside due to technical reasons, the rest of the forex majors remain unchanged. In fact, the range in most forex pairs today is pretty narrow.

It´s been getting quieter over the last few days, which leads me to believe that a breakout is coming soon. Don´t forget ECB´s Mario Draghi who will pop up any minute now. Let´s see if he can provide some action today.    

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Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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