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By Gary Dorsch
Each month, the US Treasury publishes its International Capital account (TIC) which foreign currency traders and bond dealers use to gauge the flows of money from around the world, into and out of the US capital markets. The demand for a nation’s bonds and stocks, combined with international trade flows for goods and services, plus behind the scenes intervention by central banks, all act in concert to influence the foreign exchange market which handles $4 trillion per day.
The release of the TIC report often sparks a flurry of trading activity in the foreign exchange market, due to speculators seeking to earn a fast profit. However, the initial knee-jerk reaction to the news headlines, can be very misleading, and often isn’t long-lasting. For instance, the US Dollar Index, measured against a basket of six currencies, defied conventional logic in February, by climbing +2.7% higher, even in the face of a net outflow of $91 billion in the TIC account.