True or False: As the U.S. trade deficit INCREASES, the value of the U.S. dollar DECREASES?
According to mainstream economic wisdom, that statement is true as steel. And, whenever the chance arrives to pit one against the other, the usual pundits are on the scene like smog to a cityscape.
Case in point: Tuesday May 12. On that day, the U.S. Commerce Department revealed that the March trade gap rose for the first time in eight months to $27.6 Billion. AND, the U.S. dollar plunged to its lowest level against the euro in two months.
These recent news items see a direct connection:
- "Dollar Drops As Trade Deficit Widens In March" (AP)
- "Dollar Loses as trade deficit jumped." (Reuters)
- "Dollar trades near lowest since March on speculation a widening budget deficit will undermine the greenback... There remains significant ammunition for US dollar selling." (Bloomberg)
There's just one minor problem: An inverse correlation between the deficit and the dollar does not exist.
(
Curren-SEE For Free: Elliott Wave International's first-ever
Forex FreeWeek is underway. Meaning: Instant access to in-depth currency analysis on every time frame, at absolutely NO COST. Get the complete details
HERE.)
I repeat: The deficit and the dollar do NOT consistently move in opposite directions. On this, the December 2004 Elliott Wave Financial Forecast presented this ground-breaking chart of the past three decades of the US Trade Weighted Dollar versus the Current Account Deficit/Surplus (as a percentage of GDP).
Here are few of the startling results:
- From October 1980 to February 1985, as the deficit emerged as the largest in well over a decade, the dollar surged 50%.
- From April 1995 to December 2000, the deficit took another huge leap and the dollar rallied 34%.
And, these later observations: From December 31, 2004 to November 2005, the deficit widened to the largest on record while the greenback enjoyed a steady, 15% uptrend.
2007: U.S. trade deficit narrowed for the first time in six years, all the while, the dollar sunk to new record lows against the euro.
The list goes on, suffice to say: Fundamental analysis of the world's leading currencies is a costly detour on the way to opportunity.
Take the direct route: EWI's first-ever
Forex FreeWeek. From now until Wednesday, May 20, our exclusive
Currency Specialty Service forecasts are available at the unbelievable cost of $0.00.
The most intensive and original analysis of the world's leading currencies on every time frame: intra-day, daily, weekly, and monthly. All you need is a free Club EWI password. If you don't already have it, take 30 seconds to join 140,000 + other members now.
Click HERE to take advantage of this amazing opportunity.