Thursday, July 14, 2011

United States Core (CPI) Consumer Price Index (Inflation) Release - 15 July 2011

We´ll be trading US Core CPI m/m release tomorrow. CPI or Consumer Price Index, also known as the "true cost of living", is what drives Central Banks to raise/cut interest rate, therefore this release will be widely watched. 

Here´s the forecast for the CPI:
 
8:30am (NY Time) US Core CPI m/m Forecast 0.2% Previous 0.3%

ACTION: 0.4% BUY USDJPY / 0.0% BUY EURUSD

The Trade Plan

Our minimum tradable deviation for this release is 0.2%; if the release number (core) increases to a minimum 0.4% then we will BUY USD/JPY. If the CPI number decreases to 0.0% or less, we´ll BUY EUR/USD. Historically even at a difference of 0.1%, market is likely to exaggerate its move, therefore if either of our tradable releases is hit, there is about 80% of chance market will move 50 pips within the next 90 minutes or so.

We´ll be trading this release using our after news retracement trade method.

The Market

With Thursday’s PPI surprising the market at -0.4% (a -0.2% release was estimated) and Import Prices at -0.5% for the same month, CPI release will probably show that inflationary pressure for US in the month of June decreased due to falling commodity prices…

With Fed Bernanke testifying that recent inflationary pressure was transitory due to commodity prices, it is likely that with the falling in gasoline prices in June, this CPI release will come inline or less than market expectation in my opinion.

Additional Thoughts

With FOMC focusing on Job/Economy more than Inflation, unless we get a huge surprise, market may very well ignore this release and fall back to the market trend prior to the release.

Pre-News Consideration

I’m going to look at a very careful entry of LONG EURUSD if the market drops down to recent support/congestion levels because of the possible QE3 rumor and the fact that this CPI release may come out slightly worse than expectation.

DEFINITION:

"CPI, Consumer Price Index, is a statistical estimate of the movement of the prices of goods and services bought for consumption purposes by households. Its computation uses price data collected for a sample of goods and services from a sample of sales outlets in a sample of locations for a sample of times and estimates of the shares of the different expenditures in the total covered by the index which are usually based upon expenditure data obtained for sampled periods from a sample of households wikipedia)." It is also known as the "True Cost of Living".

Thanks,