Forex Signal (Tuesday February 14, 2012 NY TIME 4:30am EDT) – UK CPI

Stavro D'Amore

Former FPA Special Consultant

Today we have UK CPI, please see my trade plan:

Forecast 3.6%
Previous 4.2%
Pair to trade: GBP/USD

The numbers we will look for:
BUY GBP/USD if we get 3.9%
SELL GBP/USD if we get 3.3%

Economical Impact: High (will bring strong volatility)
Typical Result: Good for currency
Occurrence: Released monthly, about 15 days after the month ends

About our Triggers:
We will be looking for a deviation of 0.3% to BUY and a negative -0.3 to SELL. If our deviation is hit, there is a strong and concussive possibility that the market will move 40 pips immediately either way with a double spike before an initial retracement of 30%.

What is it? Why does the market care?
The Consumer Price Index (CPI) measures the changes in the price of goods and services. This is one of the UK leading indicators, it will bring strong volatility in the markets should we get our deviations.

It is a key way to measure changes in purchasing trends and inflation in the UK. A higher than expected reading should be taken as positive/bullish for the GBP. This is considered the UK's most important inflation data because it's used as the central bank's inflation target. A lower than expected reading should be taken as negative/bearish for the GBP. One of the most common ways to fight inflation is raising the cash rates, which may attract foreign investment.

Method I use to trade this:
Stavro D’Amore Trading Method

Please be diligent trading this report as the core CPI figures are also out; however I do not expect the numbers to conflict.

Approximately 15 minutes prior to the news release I will be looking for a short term Short position using GBP/USD pair.
I would be out of this SHORT trade 1 minute before the actual release, or to avoid any spreads that should widen.

I will look for a 30-50% retracement in the original spike before entering a trade; I will sell half my position as soon as I hit the original high point of the first initial spike and place a SL at entry price. My TP level would be just before a resistance level or if the chart decides to form a support level, looking at a 15 minute chart time frame. I expect to be in this trade running for over just over 45 mins in total.

I do recommend spike trading as an option if you have an Auto clicker. Spike trading is great when there is great uncertainty in the markets; also the liquidity is very good at the moment if you are using an ECN broker.

Historical Chart and Data UK CPI

All the best

Stavro D’Amore