THE TAKEAWAY: U.S. Budget Deficit Widened in December> Imports Climbed more than Exports > U.S. Dollar Little Moved

The report issued by the Commerce Department today showed that trade deficit unexpectedly rose to $48.8 billion in December, the highest level in six months. The print is close to consensus forecast of a deficit of $48.5 billion, according to the Bloomberg survey. November deficit was revised lower to $47.1 billion from $47.8 billion initially reported. From a year prior, goods and services deficit gained $8.3 billion, with exports up 9.0 percent to $14.8 billion and imports up 11.3 percent to $23.1 billion.

U.S. Trade Balance ($BLN): January 2010 to Present

Prepared by Trang Nguyen

The U.S. trade gap widens sharply in December as imports of goods and services climbed more than exports. December imports surged $3.0 billion to $224.6 billion resulting from increases in capital goods, consumer goods, automotive vehicles and industrial supplies and material purchases from overseas. Meanwhile, exports edged up $1.2 billion $177.7 billion as U.S. firms sold more industrial supplies and materials, automotive vehicles and foods, feeds and beverages to international market.

For the full year, the total goods and services deficit was $558.0 billion in 2011, $58.0 billion up from $500 billion in 2010. As such, 2011 trade deficit was corresponding to 3.7 percent of U.S. gross domestic product compared to 3.4 percent in 2010. U.S. officials recently expressed their concerns that possible European recession would trigger the notably decline in U.S. exports to Europe, thus widening the U.S. trade gap this year.

EUR/USD 1-minute chart: February 10, 2012

Charts created using Strategy Trader– Prepared by Trang Nguyen

The U.S. dollar gained its footings versus most of its major trading partners during an overnight trade amid surge of risk aversion as investors diversified away from the euro and risk-correlated assets after euro-zone ministers postponed approval for the second bailout package to Greece. However, market participants showed fairly muted reactions following the U.S. trade balance report. As can be seen from 1-minute EUR/USD chart above, the currency pair traded within a tight range between 1.3160 and 1.3180 after U.S. trade balance was reported to hit 6-month high. The Relative Strength Indicator (RSI) lying between 30- and 70-level indicated neither overbought nor oversold reaction regarding to the EUR/USD pair. At the time this report was written, a euro trades at $1.31796.

--- Written by Trang Nguyen, DailyFX Research Team for DailyFX.com

To contact Trang, email tnguyen@dailyfx.com

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