– China Consumer Price Index (CPI) Expected to Slow for Third-time in 2014.
– CPI of 2.5% Remains the Highest Reading for This Year.
Trading the News: China Consumer Price Index (CPI)
A slowdown in China’s Consumer Price Index (CPI) may spark a bearish reaction in the AUD/USD as it dampens the outlook for global growth.
What’s Expected:
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Why Is This Event Important:
The risk of a further slowdown in China – Australia’s largest trading partner – may put increased pressure on the Reserve Bank of Australia (RBA) to further embark on its easing cycle, and we may see Governor Glenn Stevens continue to toughen up the verbal intervention in an effort to further assist with the rebalancing of the $1T economy.
Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Industrial Profits (YoY) (MAY)
—
8.9%
Westpac-MNI Consumer Sentiment (JUN)
—
112.6
Gross Domestic Product s.a. (QoQ) (1Q)
1.5%
1.4%
Slowing inflation may raise the risk for a ‘hard landing’ in China as the government takes the region to a more consumer-based economy, and a dismal CPI print may dampen the appeal of the Australian dollar as it limits the RBA’s scope to normalize monetary policy sooner rather than later..
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Purchasing Manager Index Manufacturing (JUN)
51.0
51.0
Retail Sales (YoY) (MAY)
12.1%
12.5%
Leading Index (APR)
—
100.11
Nevertheless, stronger consumption paired with the pickup in business outputs may continue to fuel price growth in China, and a better-than-expected release may prop up the AUD/USD as it raises the fundamental outlook for the Australian economy.
How To Trade This Event Risk(Video)
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Bearish AUD Trade: China CPI Slows to 2.4% or Lower
Need red, five-minute candle following the release to consider a short trade on AUD/USD
If market reaction favors a short aussie trade, sell AUD/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 AUD Trade: Price Growth Tops Market Expectations
Need green, five-minute candle to favor a long AUD/USD trade
Implement same setup as the bearish Australian dollar trade, just in reverse
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Preserve Ascending Channel for Now While RSI Retains Long-Term Bearish Trend
Interim Resistance: 1.3770 (38.2% expansion) to 1.3790 (38.2% retracement)
Interim Support: 1.3490 (50.0% retracement) to 1.3500 Pivot
Read More:
AUDUSD July Range Targets Key Support- Shorts Favored Sub 9440
Price & Time: Big Week for the Aussie
Impact that China Consumer Price Index has had on AUD/USD during the previous month
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
MAY 2014
6/09/2014 1:30 GMT
2.4%
2.5%
+8
+26
May 2014 China Consumer Price Index (CPI)
China consumer prices increased an annualized 2.5% in May after expanding 1.8% the month prior, while the Producer Price Index (PPI) slipped 1.4% during the same period following the 2.0% contraction the month prior. The strong inflation print propped up the Australian dollar, with the AUD/USD climbing back above the 0.9350 region.
— Written by David Song, Currency Analyst
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx