Forex Flash: Largest US Trade deficit to weigh on Q4 GDP estimates – BBH (Barcelona) - Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman notes that the November US trade deficit widened sharply and this will likely prompt economists to cut estimates of Q4 GDP.

He sees that the first estimate is to be released at the end of the month and the pace of growth had appeared to be about half the pace of the 3.1% rate seen in Q3. Today´s report risks even slower growth. The real deficit, which adjusts for prices, widened to almost $52 bln from $46 bln.

Exports increased by 1%, led by autos, parts and telecom equipment. Imports jumped 3.8%, the most in seven months. Ironically he notes, imports of autos and auto parts rose by $1.5 bln and cell phone imports rose $1.8 bln. These two sectors accounted for about a third of dollar rise in imports. He adds that the data may have been skewed by the port disruptions caused by both the labour dispute and Hurricane Sandy.

He adds that the Euro had already broken above the $1.33 cap before the worse than expected trade figures were released. Stop loss buying saw the Euro move to a high just above $1.3350. The consolidative tone in Asia and Europe ended abruptly with the return of North American participants. The next important objective is near $1.35. Sterling recovered from decline seen after the disappointing industrial production figures out earlier, but like most other currencies, cannot keep pace with the flows into the Euro.

Chandler finishes by writing, “Separately Canada reported a trade deficit 3x greater than the market expected at C$1.96 bln and the Oct deficit was revised to show a C$0.55 bln deficit instead of a C$0.17 bln deficit. This also does not bode well for Canada's Q4 GDP. Nevertheless, the Canadian dollar is the best performing within the dollar-bloc today. Typically, in a soft US dollar environment, the Canadian dollar lags behind the other majors.”