zerohedge.com / by Tyler Durden / Feb 10, 2017 4:52 PM
Dear FX traders: forget the dot plot, and prepare to learn a new – or to some forgotten – skill: how to read trade flows.
As Bloomberg’s Vincent Cignarella and Andrea Wong point out, currency traders accustomed to analyzing the Fed’s dot plot and monthly U.S. jobs figures to predict the direction of the world’s reserve currency are having to learn, or in some cases re-learn, a largely forgotten ability: how to scrutinize trade data. With protectionism, border tax, VAT and trade wars the buzzword of the day, suddenly international trade is all that seems to matter, and yet “It’s been decades since investors gave significant thought to the data amid easing trade tensions.”
What’s more, traders will have to learn to think small again – the flows represent a drop in the bucket for a currency market where about $5 trillion exchanges hands every day. In a world of $4 trillion central bank balance sheets, a syplus measured in billions may seem like an anachronism, but it suddenly matters a lot.
With the dollar near a 14-year high and Donald Trump accusing countries including China and Japan of keeping their currencies weak to gain trade advantages, Cignarella writes, the risk is any widening in the U.S. trade deficit may prompt a reaction from the president and spur a dollar selloff. Indicatively, on Friday, Trump was quiet after China’s monthly trade surplus with the U.S. slipped to a seven-month low of $21.4 billion.