U.S. Trade Deficit Continues to Decline Rapidly

[Ben Graham]

According to the data, in September of this year, the U.S. trade deficit unexpectedly fell to its lowest level since mid-2020. This happened thanks to a sharp increase in exports.

The Commerce Department report states that the trade deficit in goods and services shrank by nearly 11% compared to the previous month, reaching $52.8 billion. Economists' average estimate had projected a deficit of $63.1 billion.

U.S. exports rose by 3%, reaching the second-highest level on record, driven by shipments of gold and pharmaceuticals. Imports increased more modestly—by 0.6%.

Taking into account the data for all three months, net exports likely made a fairly strong contribution to GDP growth in the third quarter. As for imports, their increase was partly due to a rise in pharmaceutical imports, which was presumably triggered by President Trump's threat to impose tariffs on branded drug imports. However, aside from the threats, no action was actually taken. Imports of capital equipment and automobiles declined, as did imports of most consumer goods, including mobile phones, household appliances, toys, and furniture.

Adjusted for inflation, the trade deficit fell to $79 billion in September—the lowest level in nearly five years. Export volumes of consumer goods, after accounting for price changes, reached the highest level on record.

According to the Commerce Department, the September report showed that the U.S. exported a record amount of goods to Switzerland, resulting in the largest trade surplus with that European country in history. China's share of U.S. imports this year has dropped to its lowest level since the country joined the World Trade Organization. The seasonally adjusted goods-trade deficit with China also fell to the second-lowest level on record. The deficit with Mexico rose to a record high. The deficit with Canada also increased.

It is worth noting that the foreign-exchange market showed no reaction at all to such strong results.

Regarding the current EUR/USD technical picture, buyers now need to think about reclaiming the 1.1750 level. Only then will a test of 1.1780 become possible. From there, the pair could climb to 1.1820, though doing so without support from major players will be quite difficult. The furthest target is the 1.1855 high. In the event of a decline, I expect significant buying interest only around 1.1715. If no one steps in there, it would be wise to wait for a retest of the 1.1685 low or consider opening long positions from 1.1650.

As for the current GBP/USD technical picture, pound buyers need to reclaim the nearest resistance at 1.3390. Only then will a move toward 1.3430 become feasible, though breaking above that level will be quite difficult. The furthest target is the 1.3470 level. If the pair falls, the bears will attempt to regain control at 1.3350. If they manage to do so, a break of this range will deal a serious blow to the bulls and push GBP/USD down to the 1.3320 low, with the prospect of reaching 1.3285.

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