Watching The TIC Report For Forex Profits
September 2, 2009 by Credit Dad
Filed under Forex Trading
If you’re going to trade forex, you need to be aware of the importance of economic news releases and the trading opportunities these data points present. Even if your trading strategy is more technical than fundamental, it does pay to keep an eye on several of the major economic news releases. Most seasoned traders will tell you to focus on just a few of the most important news releases such as unemployment data from the U.S., Eurozone and the U.K. Throw in GDP updates from the biggest economies in the G-10 and maybe mix in some commodities news and your bases will be pretty well covered when it comes to trading news events.
That said, there is one report that is not well known to many forex traders that has the potential to be market-moving when it is released. That is the Treasury International Capital (TIC) report, which gauges the inflow of international capital into U.S.-based investments. While the report doesn’t get the attention that many other economic releases do, it is worth following and you should make sure your forex broker offers access to real-time news services on its trading platform so you don’t miss the TIC release.
What makes the TIC so useful and important to forex traders is that it also measures the size of the U.S. account deficit relative to the inflow of capital. What this basically means is that Uncle Sam depends in large part on foreign investments to fund domestic projects such as infrastructure as well as to fund military operations. If the TIC report shows declining inflows against rising deficits, the Federal Reserve may need to raise interest rates to increase revenue and all forex traders know that interest rate decisions are crucial in the world of forex trading.
The TIC report also gives forex traders insight into monthly data on transactions in long-term securities such as Treasuries, and monthly and quarterly data on position claims and liabilities as reported by banks and broker-dealers. Beyond that, the TIC report illustrates the gross domestic purchases and sales of U.S. securities by foreign governments and investment firms. The TIC report doesn’t distinguish between short and long-term securities and whether the purchaser or seller was a private or public concern.
Of course, the TIC report also measures the volume of purchases and sales of foreign securities by U.S. investors. A simple way to apply the TIC to bullish dollar trades would be to look for inflows out-pacing account deficits along with foreign purchases of U.S. securities outweighing sales and the purchase of foreign securities by U.S. investors.
The bottom line is the TIC report perhaps more so than any other data point, gives forex traders the opportunity to gauge Uncle Sam’s ability to finance his voracious spending habits. While an interest rate hike by the Federal Reserve may provide a short-term boost to the Dollar, it may signal that the economy is actually weak and that could mean a longer-term bearish trend for the greenback. Making the TIC report part of trading arsenal can mean another profitable avenue for trading economic data points.
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This is due to a couple of facts. First, many people jump into trading Forex because of the potential for very good profits. They do not bother to learn the intricacies of the market and they end up losing their money rather quickly. (Point number one … any investment that has the potential for high returns has a higher potential for high losses).
I agree – the TIC report is an important indicator to watch. It’s often overlooked as people (especially new traders) tend to focus on Technical Analysis and more well-known news releases like non-farm payrolls.