Dollar Breaks Amid Another Frgn Capital Shortfall

Net foreign capital flows into the US rose 23% to $66.1 bln in December from a revised $53.8 bln in December (initial was $56.6 bln). This was the second straight month in which net capital flows into the US fall below the trade deficit.

The dollar is falling across the board, with the brunt of the decline largely concentrated against euro, where EURUSD is testing the 200-day MA. We noted this morning that the “the external imbalance story is gradually making a comeback, especially if the TICS report shows a figure of less than $70 bln”.

Recall that the reason the dollar held up after last month’s release of the TICS shortfall was primarily the market anticipation of Fed Chairman Bernanke’s Congressional testimony, which ended up being USD positive.