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Forex Signal (Fri July 16, 2010 8:30am EST NY Time) U.S. Core CPI m/m

Discussion in 'Current Forex Trading Signals' started by Henry Liu, Jul 15, 2010.

  1. Henry Liu

    Henry Liu Former FPA Special Consultant

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    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. Here's the forecast:

    8:30am (NY Time) US Core CPI m/m Forecast 0.1% Previous 0.1%
    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 (either BUY USD/JPY, or GBP/JPY). If the CPI number decreases to -0.1% or less, we’ll SELL USD (BUY EUR/USD or SELL 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.

    The Market
    First it was with Greek bond tendering, and today it's with the Spanish bond auction. Looks like the entire market has recovered from sovereign debt fears and now is looking to buy the Euro along with all other European currencies.

    Considering current market condition, we know today will probably be negative for the USD, unless we get some negative news out of Europe; the volatility after the release will probably last 2 hours after the schedule, and market should move back to pre-release market trend.

    One word of caution as we trade the U.S. CPI tomorrow. As I have explained in the UK CPI analysis, FOMC is also not looking to raise/cut rates base on inflation, therefore this release probably generates very little interest in the market. However, compared to BOE, the FOMC is expected to hike rates sooner, by the end of this year, 2010, and a surprise high release of CPI should add to that sentiment.

    Here's Fed Fund Future:
    [​IMG]

    If the Fed Future starts to shift and pricing in a stronger possibility for a FOMC rate hike, then we should see more reaction from the market. But as I said, we probably won't see much but it's a good practice to check the Fed Fund Future, especially when we measure the after effect of market sentiment of the CPI release.

    It's my opinion that the market will stall until after this release, then EUR/USD could head up to the 1.3000 level. But I seriously don't think market will keep this pair at above 1.3000 for long. If anything, I'd recommend a long-term SELL on the EUR/USD because I believe EUR/USD will go down to the 1.1800 later on this year. Here are two articles if you are interested in finding out what other analysts are saying about the EUR.

    Bank of Tokyo EUR/USD Analysis

    The Most Accurate Forecaster In The World On EUR (Shaun Osborne) & His Analysis

    Additional Thoughts
    With the PPI release on Thursday at -0.5% v -0.2%e, as attributed to lower energy cost which is means that the upcoming headline inflation release is likely weaker; however, the Core CPI release, should remain unaffected as the Core PPI reading remained in line with expectation.

    PPI or Producer Price Index often has a strong correlation to the CPI, as PPI measures cost at the source, and having a higher cost at this level will often lead to higher cost at consumer level. That's why it is important to monitor PPI when trading CPI releases.

    Another note:Understanding that EUR/USD makes up about 58% of the entire Forex trades, and given the fact that USD is on 90% of one side of all exchanges, a stronger EURO will make an automatic weaker USD. Therefore the resilience in weakness that we are seeing in USD is not a sign of weakness in the U.S. fundamentals, although there is nothing to brag about right now, but the real reason is that when EUR is strong, funds are being shifted away from USD to EUR... this is the same as when USD is stronger across the board, EUR is usually the weakest currency out of all majors.

    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”.

    For more information on my news trading method, please read:
    Henry's Spike & Retracement News Trading Method

    For historical data and chart on US Core CPI, please follow:
    US Core CPI Histocial Chart & Data


    Thanks,

    [​IMG]
     
    #1 Henry Liu, Jul 15, 2010
    Lasted edited by : Sep 8, 2016
  2. yungworkz

    yungworkz Recruit

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    Henry

    Can you please expand on how GJ would be a optional pair to trade on this report?
     
  3. Henry Liu

    Henry Liu Former FPA Special Consultant

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    If USD/JPY is going up (weakness in JPY as risk appetite), expect to see both GBP/JPY and EUR/JPY to go up as well, because the weakness in JPY will be greater than the strength of USD against EUR and GBP. If the opposite is true, USD/JPY going down (strength in the JPY as risk aversion), then GBP/JPY and EUR/JPY should also move down as JPY gains across the board.

    Sometimes I prefer to look at USD/JPY but take trades on other JPY pairs because usually they do move in tandem, all the JPY crosses... You can use a strength meter to determine the best pair to trade after the release.
     
  4. yungworkz

    yungworkz Recruit

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    Thanks for the reply

    I've tried understanding strength meters in the past, but I get confused when determining what time-frame strength meter to honor. In other words. we are only interested in the next 30-45 mins after the report, so when selecting a currency pair to trade...I don't know how much the Weekly strength meter of a currency would matter. So would u consider a lower time frame maybe hourly strength meter to be more relevant to our small window of being active in the market?
     
  5. Henry Liu

    Henry Liu Former FPA Special Consultant

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    Sorry for the confusion, I am actually talking about a tool that I programmed, it is at Currency Meter | Currency Strength Meter | Forex Meter Video Tutorial & Download, I made several videos on how to install, best uses, etc... You should check it out.
     
  6. yungworkz

    yungworkz Recruit

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    Henry Thanks for the tip/tool...I'm like a kid in the toy store now :) , looks like it was alot of effort put into developing this tool. Many thanks for the effort as well. No time frames to chose from, thats great it takes the guess work out of the tool! I will began to view your videos on it! Thanks again man!
     
  7. ochills

    ochills Master Sergeant

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    pls help me with the currency strenth meter

    Mr Liu,
    I want to say thanks for your great work and you are very precise with the information you give. Pls I have tried to download the currency meter sometimes ago but I could not pls can you help me. thanks
     
  8. frankstar

    frankstar Recruit

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    Cheers for the analysis.

    I especially liked the additional notes on EUR/USD and the articles. I think knowing about the huge banks and the market movers (like their currency strategists) gives you an extra insight.

    If EUR/USD approches 1.3000 and the CPI figure is positive for the dollar, then I'll be looking to sell... but we'll see!


    Francis
     
  9. Gilgamesh

    Gilgamesh Recruit

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    Henry - what exactly is currency strength, and how is it calculated? There seem to be severak versions, e.g. one version ranges from -1 to +1. )bviously that isn't what you are talking about.
     
  10. Gilgamesh

    Gilgamesh Recruit

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    Henry, where do we find the published figures AT THE MOMENT THEY ARE PUBLISHED? It seems to me this is essential information but nowhere do I see it referred to. Have I misunderstood something?
     

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