TheNews

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

A meaningful pickup in the U.S. Consumer Price Index (CPI) may boost the appeal of the greenback and spur fresh monthly lows in EUR/USD as it fuels speculation for a Fed rate hike in 2015.

What’s Expected:

Why Is This Event Important:

Signs of stronger price growth may encourage the Fed to adopt a more hawkish tone for monetary policy, and we may see a growing number of central bank officials show a greater willingness to remove the zero-interest rate policy (ZIRP) later this year as Chair Janet Yellen remains confident in achieving the 2% target for inflation over the policy horizon.

Expectations: Bullish Argument/Scenario

Release	Expected	Actual
Producer Price Index ex Food & Energy (YoY) (JUN)	0.1%	0.3%
Unemployment Rate (JUN)	5..4%	5.3%
ADP Employment Change (JUN)	218K	237K

Rising input costs along with the ongoing improvement in the labor market may push U.S. firms to raise consumer prices, and a strong inflation report may heighten the bullish sentiment surrounding the dollar as the Fed remains on course to normalize monetary policy.

Risk: Bearish Argument/Scenario

Release	Expected	Actual
Philadelphia Fed Business Outlook Survey (JUL)	12.0	5.7
Advance Retail Sales (MoM) (JUN)	0.3%	-0.3%
NFIB Small Business Optimism (JUN)	98.5	94.1

However, waning business confidence paired with the weakness in private-sector consumption may continue to drag on price growth, and a dismal CPI print may generate a near-term rebound in EUR/USD as it drags on interest rate expectations.

How To Trade This Event Risk

Bullish USD Trade: U.S. Headline & Core CPI Picks Up in June

• 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 Inflation Falls Short of Market Expectations

• 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

• May see a run at the May low (1.0818) as EUR/USD fails to retain the range-bound price action carried over from the previous week; even though the long-term outlook remains bearish, the euro-dollar may continue to consolidate over the near to medium-term as it retains the wedge/triangle formation from earlier this year.
• Interim Resistance: 1.1180 (23.6% expansion) to 1.1210 (61.8% retracement)
• Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)

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