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- U.K. Consumer Price Index (CPI) to Slow for Fourth Time in 2014.
- Core Inflation to Fall Back From 2.0%- Marked Fastest Rate of Growth Since September.

Trading the News: U.K. Consumer Price Index

A marked slowdown in the U.K.’s Consumer Price Index (CPI) may generate a larger pullback in the GBP/USD as it limits Bank of England (BoE) scope to normalize monetary policy sooner rather than later.

What’s Expected:



Why Is This Event Important:

Nevertheless, the BoE Minutes due out later this week may reveal a growing dissent within the Monetary Policy Committee (MPC) as U.K. officials see a stronger recovery in 2014, and the market reaction to the U.K. CPI print could be short-lived should we see a growing number of central bank officials adopt a more hawkish tone for monetary policy.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Average Weekly Earnings inc Bonus (3MoY) (APR)	1.2%	0.7%
Net Consumer Credit (APR)	0.8B	0.7B
CBI Trends Selling Prices (MAY)	10	4

U.K. firms may offer discounted prices amid weak wage growth paired with the slowdown in private sector credit, and a weak inflation print may undermine the near-term outlook for the GBP/USD as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Release	Expected	Actual
Jobless Claims Change (MAY)	-25.0K	-27.4K
Private Consumption (QoQ) (1Q P)	0.6%	0.8%
Retail Sales inc. Auto (MoM) (MAR)	0.4%	1.3%

Nevertheless, the resilience in private sector consumption along with the ongoing improvement in the labor market may limit the downside risk for price growth, and a stronger-than-expected CPI print may heighten the bullish sentiment surrounding the sterling as it fuels bets for a rate hike.

How To Trade This Event Risk

Bearish GBP Trade: U.K. CPI Slips to 1.7% or Lower

• Need red, five-minute candle following the release to consider a short British Pound trade
• If market reaction favors selling sterling, short GBP/USD with two separate position
• Set stop at the near-by swing high/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 GBP Trade: Headline Reading for Inflation Exceeds Market Forecast

• Need green, five-minute candle to favor a long GBP/USD trade
• Implement same setup as the bearish British Pound trade, just in reverse

Potential Price Targets For The Release
GBP/USD Daily

• Carves Series of Higher-Lows in June; Higher-High in Place?
• Interim Resistance: 1.7000 Pivot to 1.7030 (100.0% expansion)
• Interim Support: 1.6720 (61.8% expansion) to 1.6730 (50.0% retracement)

Impact that the U.K. CPI report has had on GBP during the last release

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
APR 2014	05/20/2014 8:30 GMT	1.7%	1.8%	-23	-15

April 2014 U.K. Consumer Price Index
GBPUSD M5 : 34 pips price movement by GBPUSD - CPI news event:



U.K. consumer prices increased an annualized 1.8% in April after expanding 1.6% the month prior, while the core rate of inflation climbed 2.0% to mark the fastest pace of growth since September. Despite the stronger-than-expected CPI print, the GBP/USD slipped below the 1.6825 region following the release, but the British Pound pared the decline during the North American trade to close at 1.6836.

--- Written by David Song, Currency Analyst

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