Profit Mongers @ 3:04 AM, Tuesday December 13 2011
0430 UK CPI y/y headline (+4.8% expected, +5.0% prior, +4.6% to +5.0% range)
Affiliated reports:
-Headline CPI m/m (+0.2% expected, +0.1% prior, -0.1% to +0.3% range)
-Core CPI y/y (+3.3% expected, +3.4% prior, +3.1% to +3.4% range)
-UK RPI y/y (+5.1% expected, +5.4% prior, +5.0% to +5.4% range)
-UK RPI m/m (+0.2% expected, +0.0% prior, 0.0% to +0.4% range)
Last months -0.1 dev on y/y and m/m actually lead to a 20 pip pop higher, then a 50% retracement
15 minutes later and a continuation of a slow upward trend. Normally lower CPI would weaken the
pound, but as inflation has been so high and Interest Rates have not been hiked in response to
this, the traditional linking of this CPI to Interest Rates is out of skew. So in light of the
situation in the UK lower inflation is actually a good thing as it was getting out of control and
also means that additional QE could be implemented. The BOE has forecast inflation to come down,
and this is why they have kept rates very low despite CPI being above their target. Still we would
not get interested in trading this news on such a small deviation. In October, +0.3 on the headline
y/y provided a quick 30 pip pop higher, which did not last and within 3 minutes the GBPUSD turned
back down and went below pre-release. Much of this had to do with rumors and leaks before the
release, as the number was expected high anyhow, so much of this was priced in before the release,
and the actual release just moved higher on initial confirmation before the market moved on to other
things. This one should still react but it is not one to look for afterspike trades unless there is
a very big deviation. Spike trading CPI can become illogical during times of economic uncertainty as
higher inflation does not mean higher interest rates like it does in normal circumstances. Best to
widen triggers out from +/-0.2 to +/-0.3, and of course if all 3 main figures agree it is best.
If it comes out at 5.1% or higher, GBP/USD should rally 40-70 pips
If it comes out at 4.5% or lower, GBP/USD should fall 40-70 pips
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