Busy day tomorrow, a separate signal will be prepared for the US Interest Rate Statement later.
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0430 UK CPI y/y headline (3.2% expected)
-Headline y/y Range of estimates: 2.9-3.3%
-Headline CPI m/m 0.3% expected
-Headline CPI m/m Range of estimates: 0.0-0.4%
-Core CPI y/y 2.7 expected
-Core CPI y/y Range of estimates: 2.5-2.9%
-The BOE has raised its own inflation forecasts during its November Report quite a bit, projecting it to peak in Q1 of 2011 at 3.5% before easing back below 2.0% in 2012,obviously inflation is an issue for the BOE, otherwise they might be following the course of the Fed, which they have done in the past. So this release will be important, as there has been a case for the BOE to do more QE, but if inflation gets worse then the case for a rate hike also becomes a possibility. It is a difficult balance of growth versus inflation, and with the VAT increase and Government spending cuts starting in the new year, growth could slack requiring QE, but too much QE could cause runaway inflation and require rate hikes.
-Last release in November a +0.1 deviation caused a 30-35 pip spike and slight 38% retrace in the 2nd minute after the release, then a further 20 pip extension before rolling over right back down to pre-release price. After a small bounce here, price continued down significantly - the news reaction spike turned out to be a major top in the GBPUSD and the pair finished over 200 pips below the news spike high at the end of the day.
-October saw a flat reading on the headline cpi numbers but Core y/y did deviation +0.1, still GBPUSD fell...the anticipation of higher inflation was effecting price before the release. September's higher numbers however caused a bit of a whipsaw initially before resolving higher, which reminds traders trading CPI is not same as it was before the crash.
We have traded +/- 0.2 for this report for awhile and while it is best to err on the side of caution, on a negative deviation it might pay-off nicely to tighten the trigger a bit to -0.1, as inflation appears to be anticipated and any sign that it is not so high could produce a nice short. Look for the Headline m/m and Core y/y to agree with the main figure Headline y/y
If it comes out at 3.4% or higher, GBP/USD should rally 30-40 pips
If it comes out at 3.0% or lower, GBP/USD should fall 30-40 pips
If you are aggressive it comes out at just 3.1% or lower, GBP/USD should fall but lock in profit after just 15-20 pips, higher risk of conflicts with other CPI figures
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0500 German ZEW Economic Sentiment (4.0 expected, 1.8 previous)
-Range of Estimates: 15.0 to -8.2
-ZEW Cureent Situation Index: 85.0 expected, 81.5 previous
-EUR Economic Sentiment: 10.5 expected, 13.8 previous
-EUR Industrial Production m/m: 1.4 expected, -0.8 previous
-EUR Industrial Production y/y: 7.6 expected, 5.4 previous
-This report's is ok for a spike trade using smaller triggers of 7-10, but for an afterspike trade a bigger deviation is required such as +/- 15. This month it comes out with the EuroZone Industrial Production, this has happened before in September and July 2009. If spike trading definately make sure to control slippage and be prepared to take profit quickly either manually or using pre-set take-profit limit orders. This is not the report to hold on for big profit, but catching a solid 20 pips is definately a possibility. Last month's +7.8 deviation saw a +25 pip spike then a 61%-78% retracement, but even getting in on this retracement would have only yielded 10 pips. Price then chopped about sidewise between the news reaction high and the pre-release price. In october the deviation was flat but price still moved up 30 pips in the 1st minute and then chopped sidewise in waves of about 20 pips in height. September had a more significant deviation of -14.3 producing a quick 20 pip spike down, however it only blipped down for a second. Price retraced to pre-releasee but then did continue to fall from about 6 minutes after the release for the next for the next 40 minute for about a total of 50 pips.
-If taking an afterspike on a bigger deviation it is best if the EuroZone numbers are flat or agree with the main German Zew Economic Sentiment deviation direction.
If it comes out at 14.0 or higher, EUR/USD should rally 30 pips quickly.
If it comes out at -6.0 or negative, EUR/USD should fall 30 pips quickly.
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0830 US Retail Sales Ex Autos (0.6% expected, 0.4% previous, Range of Est.: +0.2 to +1.5%)
-Headline Retail Sales m/m: +0.6% expected, +1.2% previous, Range of Est.: +0.1% to +1.3%
Unfortunately, it's been quite some time since we've seen a surprise here, with the last 2 tradable deviations coming in March and June.
Spike Strategy - I'd trade a 0.5 trigger looking for 40 pips on either USD/CHF or EUR/USD. We'll possibly see a larger, more momentous spike on a 1.0 trigger.
The ES contract (S&P 500 futures) should see a 5+ point spike with a good chance for follow-through for a 10 point move within 5-10 minutes.
Retracement Strategy - Retail Sales tends to offer pretty frequent retracements, so I'd look to get in if a trigger is hit after about a 50% retracement.
If it comes out at +1.1% or higher, USD/JPY should rally 40 pips. ES should rally 5-10 points.
If it comes out at +0.1% or lower, USD/JPY should drop 40 pips. ES should drop 5-10 points.
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May the Pips be with you,
Magister Pips
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