Henry Liu
Former FPA Special Consultant
- Messages
- 473
We’ll be trading the UK Consumer Price Index (CPI) release at 4:30am NY Time today. We’ll be looking at the yearly release figure and the market could react with lots of volatility as CPI is the basic measurement of Inflation, therefore expect to see more exaggerated moves if we get a huge surprise release. Here is the forecast:
4:30am NY Time UK CPI y/y Forecast 4.4% Previous 4.4%
ACTION: GBP/USD BUY 4.7% SELL 4.1%
The Trade Plan
We are looking for a deviation of 0.3% for SELL and 0.3% for BUY. If the Inflation number increases to of 4.7%, which is way above BOE’s inflation target, we will BUY of GBP/USD. If the Inflation number decreases to 4.1% or less, we’ll look to SELL GBP/USD. Historically, even with a slight difference of 0.1%, market usually overreacts. If our deviation is hit, there is a strong possibility that the market will move 50 pips immediately.
We’ll be looking to trade this release using my after-news retracement method. We’ll wait for the release, wait for market spike, and then wait for a decent retracement before jumping in. For more information on my trading methods:
Henry's News Trading Method
The Market
Bank of England has been very hawkish about taking action to control inflation, which is currently above 4% (BOE’s inflation target is usually around 2.0%). With inflation out of control and consistently pushing to the upside, BOE may not have a choice but to act sooner than later on tightening interest rates. CPI is the measurement of inflation; if we see a rise in this release, it usually means that the ‘true cost of living” has gone up.
According to the median forecast of 30 economists by Bloomberg, the forecast for today’s CPI is at an unchanged level of 4.4%; in the event for a surprise increase, BOE will be under further scrutiny for their current policy of allowing higher inflation with the hopes for economic recovery… With 3 members in MPC already voting for a rate hike (Sentance is voting for a 50 basis point hike), market consensus is for a May or June rate hike…
Additional Thoughts
We will probably see the first wave of market reaction immediately after the release, then more reaction followed by the Inflation letter… (Governor King is expected to write a letter to the Chancellor of the Exchequer if CPI goes above 3% or below 1%.)
Pre-news Consideration
I think there should be some pre-news buying of Sterling today, therefore if GBPUSD drops to support levels, I’d go LONG before the schedule.
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 Chart and Data for UK CPI y/y
Thanks,
4:30am NY Time UK CPI y/y Forecast 4.4% Previous 4.4%
ACTION: GBP/USD BUY 4.7% SELL 4.1%
The Trade Plan
We are looking for a deviation of 0.3% for SELL and 0.3% for BUY. If the Inflation number increases to of 4.7%, which is way above BOE’s inflation target, we will BUY of GBP/USD. If the Inflation number decreases to 4.1% or less, we’ll look to SELL GBP/USD. Historically, even with a slight difference of 0.1%, market usually overreacts. If our deviation is hit, there is a strong possibility that the market will move 50 pips immediately.
We’ll be looking to trade this release using my after-news retracement method. We’ll wait for the release, wait for market spike, and then wait for a decent retracement before jumping in. For more information on my trading methods:
Henry's News Trading Method
The Market
Bank of England has been very hawkish about taking action to control inflation, which is currently above 4% (BOE’s inflation target is usually around 2.0%). With inflation out of control and consistently pushing to the upside, BOE may not have a choice but to act sooner than later on tightening interest rates. CPI is the measurement of inflation; if we see a rise in this release, it usually means that the ‘true cost of living” has gone up.
According to the median forecast of 30 economists by Bloomberg, the forecast for today’s CPI is at an unchanged level of 4.4%; in the event for a surprise increase, BOE will be under further scrutiny for their current policy of allowing higher inflation with the hopes for economic recovery… With 3 members in MPC already voting for a rate hike (Sentance is voting for a 50 basis point hike), market consensus is for a May or June rate hike…
Additional Thoughts
We will probably see the first wave of market reaction immediately after the release, then more reaction followed by the Inflation letter… (Governor King is expected to write a letter to the Chancellor of the Exchequer if CPI goes above 3% or below 1%.)
Pre-news Consideration
I think there should be some pre-news buying of Sterling today, therefore if GBPUSD drops to support levels, I’d go LONG before the schedule.
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 Chart and Data for UK CPI y/y
Thanks,
Last edited by a moderator:
