TheNews

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

A marked pickup in the U.S. Consumer Price Index (CPI) may heighten the appeal of the dollar and spark a further decline in EUR/USD as it puts increased pressure on the Federal Open Market Committee (FOMC) to implement higher borrowing-costs in 2016.

What’s Expected:

Why Is This Event Important:

Signs of stronger price growth may encourage the Fed to further normalize monetary policy over the coming months especially as the U.S. economy approaches ‘full-employment,’ while Chair Janet remains confident in achieving the 2% inflation target over the policy horizon.

Nevertheless, waning confidence paired with the slowdown in private-sector activity may drag on price growth, and a dismal development may produce near-term headwinds for the greenback as market participants push out bets for the next Fed rate-hike.

How To Trade This Event Risk

Bullish USD Trade: CPI Climbs to 1.3% or Higher, Core Inflation Remains Sticky

• 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.

Bullish USD Trade: Inflation Report Fails to Meet Market Expectations

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

Potential Price Targets For The Release
EURUSD Daily

• Even though the diverging paths for monetary policy casts a long-term bearish outlook for EUR/USD, the pair may continue to retrace the decline from the previous year as it breaks out of the downward trend from late-2014, while the Relative Strength Index (RSI) preserves the bullish formation carried over from November.
• Interim Resistance: 1.1510 (50% retracement) to 1.1520 (61.8% expansion)
• Interim Support: Interim Support: 1.0380 (78.6% expansion) to 1.0410 (61.8% expansion)

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