• Home
• Guides
  Stocks Forex Options Bonds Technical Analysis Fundamental Analysis
• Economy
  Basic Economics
• History
• Learn a language
• Technology
• Dictionary
  Stocks Forex Technical analysis Finance

Market Impact: High
Trade Balance

The United States has become the ultimate consumer within the international community. It receives more products from other countries, whose currencies have less value against its own therefore, when it reaches the shelves of retailers, it is a lot cheaper in the eyes of consumers. This scenario creates a trade deficit for the united states as the percentage of its imports outweighs exports.

A trade deficit creates a downward pressure on a country’s currency. When the US imports goods from Japan, the currency needed to complete the transaction has to be in Japanese Yen, because the US dollar can’t be used in Japan. US importers would have to constantly sell their currency in exchange for the Japanese Yen, if you see where it is headed; it is basically going long JPY and selling USD in heavy volume.

A trade surplus means a country has more exports than imports. This activity creates a heavy demand for its currency since the country buying its goods also has to buy its currency to use as payment.