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Forex Signal (Tue October 12 2010, 4:30am NY Time EDT) - UK CPI y/y

Discussion in 'Current Forex Trading Signals' started by Henry Liu, Oct 11, 2010.

  1. Henry Liu

    Henry Liu Former FPA Special Consultant

    Jul 5, 2010
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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 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 3.1%
    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
    EURUSD is consolidating from recent gains and it is likely to keep GBPUSD under pressure as market reevaluate current levels. With GBPUSD reaching above the 1.600 psychological and technical level, the upside potential for the pair is rather limited.

    Furthermore, BOE's ambiguous stance on monetary policy will turn buyers away as traders wait for better insights in the upcoming MPC Meeting Minutes... Market will most likely fall into a holding pattern following the broader markets, such as the equity and fixed income.

    Additional Thoughts
    With CPI remaining above the 3% target, if we see it trending up, BOE may have to lean on hiking rates soon, or at least dial down talks for stimulus. This would significantly boost GBP demand. However, if we get 2.8%, then it would increase expectation for stimulus, thus weaken the Sterling significantly.

    Pre-news Consideration
    I believe we should stay out of the market before the release.

    “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


    #1 Henry Liu, Oct 11, 2010
    Lasted edited by : Sep 8, 2016
  2. BayoBest

    BayoBest Private

    Aug 18, 2010
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    Thanks once again
  3. MatthewT

    MatthewT Recruit

    Oct 1, 2010
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    noob question coming:

    When you say: 'ACTION: GBP/USD BUY 3.4% SELL 2.8%'
    What should be 3.4% when I need to buy, and 2.8% when it is wise to sell?

    Thans for any help!

    BTW! Nice job you do Henry!
  4. ecafyelims

    ecafyelims Corporal

    Jan 6, 2010
    Likes Received:
    He's speaking of the news release numbers -- specifically UK Consumer Price Index (CPI) in this case.

    You can get this number by clicking the "Historical Data & Chart For UK CPI y/y" link at the bottom of Henry's post.

    You'll see it released at 2.7%, so this would have been a SELL trade, and you could have gotten a few nice pips off the retrace.

    I suggest reading Henry's two-part sticky thread, "Henry Liu & Forex Trading Signals - Explained," for more details on how to trade his strategy.
  5. PipDog

    PipDog Corporal

    Jul 25, 2010
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    It Was A "No Trade"

    You'll see it released at 2.7%, so this would have been a SELL trade, and you could have gotten a few nice pips off the retrace.

    Not a SELL trade...It was a NO TRADE!!! You are mistakenly looking at the Core CPI Y/Y. The trade was for Headline CPI Y/Y, which came out at 3.1 as forecast. If you made anything off this trade, you got lucky.

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