– U.K. Consumer Price Index (CPI) to Increase for First Time in 2014.
– Core Inflation to Rise 1.8%- Fastest Rate of Growth Since November.
Trading the News: U.K. Consumer Price Index
A marked rebound in the U.K.’s Consumer Price Index (CPI) may pave the way for fresh highs in the GBP/USD as it puts increased pressure on the Bank of England (BoE) to normalize monetary policy sooner rather than later.
What’s Expected:
Why Is This Event Important:
Indeed, the BoE Minutes may reveal a growing dissent within the Monetary Policy Committee (MPC) as U.K. officials anticipate a stronger recovery in 2014, and heightening price pressures may boost the bullish sentiment surrounding the British Pound as it spurs a more material shift in the policy outlook.
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Expectations: Bullish Argument/Scenario
Release
Expected
Actual
Net Consumer Credit (MAR)
0.6B
1.1B
GfK Consumer Confidence (APR)
-4
-3
Retail Sales inc. Auto (MoM) (MAR)
-0.4%
0.1%
The ongoing pickup in household sentiment along with the resilience in retail sales may push U.K. firms to ramp up consumer prices, and a sharp uptick in the headline reading for inflation should foster a bullish reaction in the GBP/USD as it fuels interest rate expectations.
Risk: Bearish Argument/Scenario
Release
Expected
Actual
Jobless Claims Change (APR)
-30.0K
-25.1K
BRC Shop Price Index (YoY) (APR)
-0.8%
-1.4%
Mortgage Approvals (MAR)
72.0K
67.1K
Nevertheless, efforts to cool the house paired with the persistent slack in the real economy may continue to dampen the outlook for price growth, and a dismal CPI print may generate a larger correction in the GBP/USD as market participants scale back bets of seeing higher borrowing costs ahead of schedule.
How To Trade This Event Risk(Video)
Bullish GBP Trade: U.K. CPI Climbs 1.7% or Higher
Need green, five-minute candle following the release to consider a long British Pound trade
If market reaction favors buying sterling, go long GBP/USD with two separate position
Set stop at the near-by swing low/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
Bearish GBP Trade: Headline Reading for Inflation Disappoints
Need red, five-minute candle to favor a short GBP/USD trade
Implement same setup as the bullish British Pound trade, just in opposite direction
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Retains Ascending Channel from 2013- Higher Low in Place?
Interim Resistance: 1.7000 Pivot to 1.7030 (100.0% expansion)
Interim Support: 1.6730 (61.8% expansion) to 1.6720 (50.0% retracement)
Impact that the U.K. CPI report has had on GBP during the last release
Period
Data Released
Estimate
Actual
Pips Change
(1 Hour post event )
Pips Change
(End of Day post event)
MAR 2014
04/15/2014 8:30 GMT
1.6%
1.6%
+69
+65
March 2014 U.K. Consumer Price Index
U.K. consumer prices increased an annualized 1.6% in March after expanding 1.7% the month prior, while the core rate of inflation grew 1.6% during the same period to match the slowest pace of growth for 2014. Despite the slowdown, the in-line CPI prints pushed the GBP/USD back above the 1.7000, with the pair ending the day at 1.6723.
— 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