Currency traders especially those who trade GBP and USD pairs are anxiously waiting for the CPI m/m data release in the next few hours. GBP/USD reacted wildly by falling around 100 pips on the CPI y/y data release today.UK inflation was 1.6% year on year versus 1.8% that was expected so the market fell. Now it’s time for the US CPI m/m. Traders are anxiously waiting for the whiff of inflation in the us economy. At exactly the same time, Building Permits and Housing Starts. Tomorrow FOMC Meeting Minutes are scheduled for the release.
Markets have been on inflation watch, particularly for wage inflation, because a hotter pace may affect Fed policy. The Federal Reserve watches inflation but its preferred metric is the personal consumption expenditures, or PCE, running at about 1.5 percent. Watch the video on how to trade CPI m/m!
After watching the above video, you should have a clear idea on how to trade CPI m/m economic news release. CPI M/M means Consumer Price Index month over month. This is the monthly measure of inflation in the economy. CPI Y/Y means Consumer Price Index year over year. CPI Y/Y is a measure of inflation in the economy on a year by year basis. You should also understand the role of expectations in markets. Markets work on expectations. When there is an expectation in the market that inflation is going to increase, then it will increase automatically. Sounds strange? Well it is. Did you watch this 1 hour video on trend pullback breakout trading strategy?
This is something important for you to understand. Markets don’t like surprises. Before each economic news release, analysts make a most probable estimate of the economic data. In this case it will be CPI M/M. Now when the actual CPI M/M figures are released, if they are closed to the estimated figures, there will be no surprise for the markets. There will be very little reaction. On the other hand if the released CPI M/M figures are very different from the estimated figures, you will see a wild reaction by the market. This is how the markets work. When they are surprised, they become wild and violent. This wild and violent behavior is known as volatility in the market. Volatility is meant to adjust the market with the reality. Did you read the post on AUD/USD technical analysis?
What this means is every time market is not going to react. Markets only react when they get surprised. So everytime CPI M/M or CPI Y/Y figures are released don’t expect big reaction by the market. Markets will only react when CPI M/M or CPI Y/Y figures are different from the ones expected by the market. This is something the markets don’t like! Check our Candlestick Trading System! Using our Candlestick Trading System you can trade news very easily.