TheNews

Trading the News: U.S. Consumer Price Index (CPI)

A rebound in the headline U.S. Consumer Price Index (CPI) may boost the appeal of the greenback and spur a near-term pullback in EUR/USD as it puts increased pressure on the Fed to normalize monetary policy sooner rather than later.

What’s Expected:

Why Is This Event Important:

Signs of stronger price growth may keep the Fed on course to raise the benchmark interest rate later this year, but a continuation of the disinflationary environment may encourage the central bank to retain the zero-interest rate policy (ZIRP) beyond 2015 in an effort to encourage a more sustainable recovery.

Expectations: Bullish Argument/Scenario

Release	Expected	Actual
U. of Michigan Confidence (JUN P)	91.2	94.6
Advance Retail Sales (MoM) (MAY)	1.2%	1.2%
NFIB Small Business Optimism (MAY)	97.2	98.3

Improved confidence along with the rebound in household spending may encourage U.S. firms to boost consumer prices, and a marked rebound in the headline reading may spark a bullish reaction in the dollar as it fuels interest rate expectations.

Risk: Bearish Argument/Scenario

Release	Expected	Actual
Producer Price Index ex Food & Energy (YoY) (MAY)	0.7%	0.6%
ISM Non-Manufacturing (MAY)	57.0	55.7
Personal Consumption Expenditure- Core (YoY) (APR)	1.4%	1.2%

However, subdued input costs paired with the persistent slack in the real economy may continue to drag on price growth, and a dismal CPI print may generate a further near-term advance in EUR/USD as market participants push back for the Fed liftoff.

How To Trade This Event Risk

Bullish USD Trade: U.S. CPI Rebounds 0.1% or Greater

• Need to see red, five-minute candle following the release to consider a short trade on EUR/USD.
• If market reaction favors a bullish dollar trade, sell EUR/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.

Bearish USD Trade: Consumer Price Growth Disappoints

• Need green, five-minute candle to favor a long EUR/USD trade.
• Implement same setup as the bullish dollar trade, just in reverse.

Potential Price Targets For The Release
EURUSD Daily

• Despite the more cautious tone coming out of the Federal Reserve, EUR/USD may continue to face range-bound prices over the near-term as it fails to break out of the monthly opening range.
• Interim Resistance: 1.1510 (61.8% expansion) to 1.1532 (February high)
• Interim Support: 1.0970 (38.2% expansion) to 1.1000 (50% retracement)

Impact that US CPI has had on EUR/USD during the last release

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	PipsChange (End of Day post event)
APR 2015	05/22/2015 12:30 GMT	-0.2%	-0.2%	-144	-165

March 2015 U.S. Consumer Price Index
EURUSD M5: 140 pips price movement by USD - Consumer Price Index news event:

The U.S. Consumer Price Index (CPI) contracted an annualized 0.2% in April, while the core rate of inflation unexpectedly held steady at 1.8% amid forecasts for a 1.7% print. The stickiness the core CPI may keep the Fed on course to remove the zero-interest rate policy (ZIRP) later this year, but fears of a slower recovery may spark a further delay in the normalization cycle as the central bank largely remains ‘data dependent.’ The greenback strengthened following the release, with EUR/USD dipping below 1.1050 to end the session at 1.1008.

--- Written by David Song, Currency Analyst and Shuyang Ren


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