TheNews

Trading the News: U.K. Consumer Price Index

A further slowdown in the U.K. Consumer Price Index (CPI) may generate a near-term pullback in GBP/USD as it puts increased pressure on the Bank of England (BoE) to retain its current policy throughout 2015.

What’s Expected:

Why Is This Event Important:

However, the stickiness in the core rate of inflation may limit the downside risk for the sterling as BoE Governor Mark Carney anticipates faster price growth in the second-half of the year, and the central bank head may continue to prepare U.K. households and businesses for higher borrowing-costs should the fundamental developments show signs of a stronger recovery.

Expectations: Bearish Argument/Scenario

Release	Expected	Actual
Net Consumer Credit (MAY)	1.1B	1.0B
CBI Trends Selling Price (JUN)	--	-7
Producer Price Index- Output n.s.a. (YoY) (MAY)	-1.6%	-1.6%

Lower input costs paired with the slowdown in private-sector credit may encourage U.K. firms to offer discounted prices, and a weak CPI figure may dampen the appeal of the British Pound as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Release	Expected	Actual
GfK Consumer Confidence (JUN)	2	7
Retail Sales inc. Auto Fuel (MoM) (MAY)	-0.1%	0.2%
Average Weekly Earnings ex. Bonus (3MoY) (APR)	2.5%	2.7%

Nevertheless, improved confidence along with resilience in household consumption may prompt a strong inflation print, and a positive development may pave the way for a near-term advance in GBP/USD as the BoE remains on course to normalize monetary policy.

How To Trade This Event Risk

Bearish GBP Trade: U.K. Headline & Core CPI Highlight Slower Price Growth

• Need red, five-minute candle following the release to consider a short British Pound trade.
• If market reaction favors bearish sterling trade, 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: U.K. Inflation Exceeds Market Expectations

• 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

GBPUSD Daily

• Waiting for a break of the downward trend from June to instill a more bullish outlook for GBP/USD as the RSI fails to retain the bearish momentum.
• Interim Resistance: 1.5630 (38.2% retracement) to 1.5650 (38.2% expansion).
• Interim Support: 1.5330 (78.6% retracement) to 1.5350 (50% retracement).

Impact that the U.K. Core 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)
MAY 2015	06/16/2015 08:30 GMT	1.0%	0.9%	-14	+62

May 2015 U.K. Core Consumer Price Index
GBPUSD M5: 68 pips price movement by GBP - CPI news event:

The U.K. Consumer Price Index (CPI) climbed an annualized 0.1% in May after contracting for the first time since 1960, while the core rate of inflation climbed to 0.9% from 0.8% the month prior to mark the first advance since January. Even though the Bank of England (BoE) remains on course to normalize monetary policy, subdued price growth may encourage the central bank to retain its wait-and-see approach throughout 2015, and the British Pound may face further headwinds over the near to medium-term as the committee remains unanimous in preserving its current policy stance. GBP/USD slipped below the 1.5500 following the mixed CPI print, but the pound-dollar regained its footing during the North American trade to end the day at 1.5646.

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