Trading the News: U.S. Consumer Price Index

Trading the News: U.S. Consumer Price Index

22 October 2014, 17:21
Sergey Golubev

A further slowdown in the U.S. Consumer Price Index (CPI) may spark a bearish dollar reaction (bullish EUR/USD) as the majority of the Federal Open Market Committee (FOMC) remain in no rush to normalize monetary policy.

What’s Expected:

Why Is This Event Important:

Even though the Fed is widely expected to conclude its quantitative easing (QE) program at the October 29 meeting, subdued price growth may encourage the FOMC to retain the zero-interest rate policy (ZIRP) for an extended period of time in order to promote a stronger recovery.

Easing input costs along with the slowdown in private-sector consumption may spur a weak CPI print, and the EUR/USD may face a larger correction over the near-term should the fundamental development drag on interest rate expectations.

How To Trade This Event Risk

Bearish USD Trade: Headline & Core Inflation Continue to Undershoot

  • Need to see green, five-minute candle following the release to consider a long trade on EURUSD
  • If market reaction favors a bearish dollar trade, buy EURUSD with two separate position
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit
Bullish USD Trade: Price Growth Tops Market Expectations & Boosts Rate Expectations
  • Need green, five-minute candle to favor a short EURUSD trade
  • Implement same setup as the bearish dollar trade, just in the opposite direction
Potential Price Targets For The Release

Impact that the U.S. ISM Manufacturing report has had on EUR/USD during the last release
PeriodData ReleasedEstimateActualPips Change
(1 Hour post event )
Pips Change
(End of Day post event)
9/17/2014 12:30 GMT 1.9% 1.7% +1 -93

August 2014 U.S. Consumer Price Index
EURUSD M5 : 24 pips price movement by USD - CPI news event

EURUSD M5: 38 pips price movement by USD - CPI news event

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