Forex Signal (Fri, August 13 2010, 8:30am NY Time EST) - US Core CPI m/m

[Henry Liu]

We’ll be trading US Core CPI m/m release today. 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. At the same time, we also have the US Core Retail Sales, which is another strong high impact release that could change the short term market trend; therefore please also read my analysis on that release... Here’s the forecast for the CPI:

8:30am (NY Time) US Core CPI m/m Forecast 0.1% Previous 0.2%
ACTION: USD/JPY BUY 0.3% SELL -0.1%

The Trade Plan
Our minimum tradable deviation for this release is 0.2%; if the release number (core) increases to a minimum 0.3% then we will BUY USD/JPY. If the CPI number decreases to -0.1% or less, we’ll SELL USD USD/JPY. 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. Since both CPI and Retail sales are scheduled at the same time, waiting for retracement is not only the logical thing to do, but also the safe thing to do.

For more information on my trading methods:
Henry's news trading methods.

The Market
Recent market pessimism started first with Trichet's bearish tone during ECB's Press Conference last week and broadened further with this week's FOMC statement. It is likely that we are looking at a major reversal in trend as predicted in this week's upcoming overview.

Considering current market condition, we probably will see some further pressure on EUR/USD pair, and all other currency pairs may follow EUR's direction... With inflationary pressure subdued, this release may not provide a trading opportunity, therefore I'd suggest to focus more on the Retail Sales.

Furthermore, with the recent FOMC statement leaving the "extended period" phrase in, market is not expecting a rate hike anytime soon, which makes this release less "important" as traders will not expect a rate hike soon even if we get a higher than expected release.

Additional Thoughts
Core CPI may provide an opportunity to position a long-term trade on shorting the EUR/USD if we see a spike up to the 1.29000~1.3000 area. Because of the break below 1.30, EUR/USD's current trend should be bearish.

USD/JPY is on the way up. If you have gone LONG on USD/JPY per my recommendation earlier, I'd suggest to hold on this trade as it has strong potential of reaching above the 90s.

PreNews Consideration
There is no pre-news bias for this release. There might be for the Retail Sales. Please read my analysis on that.

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”.

Historical Data & Chart Of US Core CPI.


Thanks,

 

[zarni]

could you elaborate on what you base your categorization of trichet's press conference as negative for eurozone?
if anything it was positive. euro was still in an uptrend following press conference. it was not until 4 days later the next week that euro started heading downwards.

Here are key excerpts of Trichet's speech (did you read it at all?):
The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010, and the available data for the third quarter are better than expected. Looking further ahead, and taking into account a number of temporary factors, we continue to expect the euro area economy to grow at a moderate and still uneven pace, in an environment of uncertainty.

Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. Euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010. The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010 and the available data for the third quarter are better than expected.

...

In this respect, we welcome the EU-wide stress-testing exercise, which was prepared and conducted by the Committee of European Banking Supervisors (CEBS) and national supervisory authorities, in close cooperation with the ECB. This stress-testing exercise was comprehensive and rigorous, and the results confirm the resilience of EU and euro area banking systems as a whole to severe economic and financial shocks. The stress test has also significantly enhanced transparency regarding the current financial conditions and risk exposures of the 91 institutions that participated in the exercise. Hence, the exercise represents an important step forward in restoring market confidence

 

[zarni]

...Silence...

could you elaborate on what you base your categorization of tricket's press conference as negative for eurozone?
if anything it was positive. euro was still in an uptrend following press conference. it was not until 4 days later the next week that euro started heading downwards.

Here are key excerpts of Trichet's speech:
The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010, and the available data for the third quarter are better than expected. Looking further ahead, and taking into account a number of temporary factors, we continue to expect the euro area economy to grow at a moderate and still uneven pace, in an environment of uncertainty.

Let me now explain our assessment in greater detail, starting with the economic analysis. After a period of sharp decline, euro area economic activity has been expanding since mid-2009. Euro area real GDP increased, on a quarterly basis, by 0.2% in the first quarter of 2010. The available economic data and survey-based indicators suggest a strengthening in economic activity in the second quarter of 2010 and the available data for the third quarter are better than expected.

...

In this respect, we welcome the EU-wide stress-testing exercise, which was prepared and conducted by the Committee of European Banking Supervisors (CEBS) and national supervisory authorities, in close cooperation with the ECB. This stress-testing exercise was comprehensive and rigorous, and the results confirm the resilience of EU and euro area banking systems as a whole to severe economic and financial shocks. The stress test has also significantly enhanced transparency regarding the current financial conditions and risk exposures of the 91 institutions that participated in the exercise. Hence, the exercise represents an important step forward in restoring market confidence