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 volatitility 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 3.1% Previous 3.2%
ACTION: GBP/USD BUY 3.4% SELL 2.8%
The Trade Plan
We are looking for a safe deviation of 0.3% for SELL and 0.3% for BUY. If the Inflation number increases to of 3.4%, which is above BOE’s inflation target, we will BUY of GBP/USD. If the Inflation number decreases to 2.8% 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, then wait for a decent retracement before jumping in. For more information on my trading methods:
Henry's News Trading Methods.
The Market
Risk aversion has strengthened on the back concerns over global economic recovery. GBP has suffered as a result of last week's BOE Inflation Report which once again painted a bleak outlook for UK's economy. BOE Gov. King stated that inflationary (or CPI) should drop to 1.5% in 2 years, and growth pretty much peaked during the 2nd quarter of 2010.
However, BOE has been singing the same tune since the beginning of 2010, and as a matter of fact, previous BOE Inflation report stated that inflationary pressure (CPI) should drop below the 2.0% target by the end of year; instead, we're getting 3 upside surprises during the last 7 releases by 0.2% or more...
BOE's arguments for this unsual resilience in inflationary pressure include high fuel prices and the rise in VAT from 17.5pc to 20pc., and insists that these temporary effects will be wearing off soon. As a matter of fact, BOE Inflation Report is opening doors for further easing policy by expanding its Asset Purchasing Facilities. It is likely we'll see some selling pressure on the GBP today.
Additional Thoughts
With BOE opening the door for further easing, there is really no upside on the short term. We're like to see further selling of GBP, even if we get a slightly better than expected CPI y/y. However, if we get a worse than expected release, this could be a catalyst for a more profound move as MPC Meeting Minutes scheduled for the next day could add to more bearish sentiment for Sterling.
Pre-news Consideration
I believe we could see some moderate pre-selling before the release. However, the expectation for today's release is pretty "as expected", but I'd expect more selling pressure after the release. I'd recommend to wait for at least 1.5700 before taking a SELL...
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 For UK CPI y/y
Thanks,
4:30am NY Time UK CPI y/y Forecast 3.1% Previous 3.2%
ACTION: GBP/USD BUY 3.4% SELL 2.8%
The Trade Plan
We are looking for a safe deviation of 0.3% for SELL and 0.3% for BUY. If the Inflation number increases to of 3.4%, which is above BOE’s inflation target, we will BUY of GBP/USD. If the Inflation number decreases to 2.8% 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, then wait for a decent retracement before jumping in. For more information on my trading methods:
Henry's News Trading Methods.
The Market
Risk aversion has strengthened on the back concerns over global economic recovery. GBP has suffered as a result of last week's BOE Inflation Report which once again painted a bleak outlook for UK's economy. BOE Gov. King stated that inflationary (or CPI) should drop to 1.5% in 2 years, and growth pretty much peaked during the 2nd quarter of 2010.
However, BOE has been singing the same tune since the beginning of 2010, and as a matter of fact, previous BOE Inflation report stated that inflationary pressure (CPI) should drop below the 2.0% target by the end of year; instead, we're getting 3 upside surprises during the last 7 releases by 0.2% or more...
BOE's arguments for this unsual resilience in inflationary pressure include high fuel prices and the rise in VAT from 17.5pc to 20pc., and insists that these temporary effects will be wearing off soon. As a matter of fact, BOE Inflation Report is opening doors for further easing policy by expanding its Asset Purchasing Facilities. It is likely we'll see some selling pressure on the GBP today.
Additional Thoughts
With BOE opening the door for further easing, there is really no upside on the short term. We're like to see further selling of GBP, even if we get a slightly better than expected CPI y/y. However, if we get a worse than expected release, this could be a catalyst for a more profound move as MPC Meeting Minutes scheduled for the next day could add to more bearish sentiment for Sterling.
Pre-news Consideration
I believe we could see some moderate pre-selling before the release. However, the expectation for today's release is pretty "as expected", but I'd expect more selling pressure after the release. I'd recommend to wait for at least 1.5700 before taking a SELL...
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 For UK CPI y/y
Thanks,
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