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Forex Signal (Tue May 17 2011, 4:30am NY Time EST) - UK CPI y/y

Discussion in 'Current Forex Trading Signals' started by Henry Liu, May 16, 2011.

  1. Henry Liu

    Henry Liu Former FPA Special Consultant

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    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 4.2% Previous 4.0%
    ACTION: GBP/USD BUY 4.5% SELL 3.9%

    The Trade Plan
    We are looking for a deviation of 0.3% to SELL and to BUY. If the Inflation number increases to 4.5%, which is way above BOE’s inflation target, we will BUY GBP/USD. If the Inflation number decreases to 3.9% 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 Liu's Trading Method

    The Market
    The cost of living continues to rise. Many economists forecast the annual CPI headline rate to come in at 4.2% for the month of April. The three major reasons are duty hikes to alcohol and tobacco as well as the rise in gas prices.

    The MPC comittee faces the challenge of holding or hiking interest rates in the near future. Those opposed to the a rate hike fear that it’s a bad idea in the midst of reduced consumer spending, tax rises, and economic instability.

    The bank of England is forecasting growth rate to settle under 2.9% two years down the road. This leaves consumers with a high level of uncertainty because growth rate was previously reported at 3.1%.

    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,



    [​IMG]
     
    #1 Henry Liu, May 16, 2011
    Lasted edited by : Sep 8, 2016
  2. PipDog

    PipDog Corporal

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    How'd That Work Out....?

    Did anybody buy the GBPUSD after the news...likely right at the top? Watch out...looks like risk aversion is back in play and selling the USD will be risky.
     

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