Capital inflow and outflow are some of the key macroeconomic indicators influencing a country’s national currency. The US Dollar is no exception. According to , the formula is fairly simple: The bigger the capital inflow is, the stronger the national currency becomes, and vice versa.
The US Department of the Treasury published an official report on September 18th 2012. The report suggests an improvement in the US financial sector. How will it influence the US Dollar? Let answer this question.
Report Details
As we have just mentioned, the US Department of the treasury published another financial report:
The net inflow of capital increased up to $73,7bn in July.
For comparison, it was only $15,1bn in June.
In July 2012:
The foreign purchases of long-term US bonds were estimated at 60,2bn against June’s $5.5bn.
The foreign purchases of short-term US bonds were estimated at 8,0bn against June’s $2.7bn.
What was the reaction of the US Dollar? The market reached a monthly low. Then the news reassured investors and the market started recovering.
Near-Term Outlook
At this point, there is no mid-term trend reversal in the market of EURUSD and GBPUSD, which have been rallying since late July. Mid-term trends cannot reverse in a day. According to , EURUSD will reverse only if the price overcomes the bottom of the MF sloping channel and consolidates below 1.2857 (as shown below):
Masterforex-V: Latest stats present no value to Forex traders as they explain past Forex moves.
The US Department of the Treasury published such reports with a 2-month delay. In September, we get July stats and are supposed to realize that it was the end of the major downtrend in the markets of GBPUSD, EURUD and other currency pairs. Therefore, the stats look worthless.
At that time, stock market was bearish due to negative quarterly reports and economic slowdown.
If to consider the current situation in the US bond market, inflation seems the determining factor. As we all know, the Federal Reserve announced its decision to start QE3 and maintain low interest rates till 2015. This will support the bond market. However, tons of money were poured into the US economy during the previous rounds of quantitative easing. Therefore, investors are worried about possible inflation growth. If this is the case, bonds will decrease in value.
