– U.K. Consumer Price Index (CPI) to Slow for Fifth Time in 2014.
– Core Rate of Inflation to Fall Back From Fastest Pace of Growth This Year.
Trading the News: U.K. Consumer Price Index
A slowdown in the U.K.’s Consumer Price Index (CPI) may help to close the weekly opening gap in the GBP/USD should the inflation report drag on interest rate expectations.
What’s Expected:
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Why Is This Event Important:
The Bank of England (BoE) may continue to soften its hawkish tone for monetary policy as the central bank cuts its outlook for U.K. wage growth, and a weaker-than-expected CPI print is likely to trigger a bearish reaction in the GBP/USD as market participants scale back bets of seeing a rate hike in 2014.
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Expectations: Bearish Argument/Scenario
Release
Expected
Actual
Average Weekly Earnings in Bonus (3MoY) (JUN)
-0.1%
-0.2%
Retail Sales ex Auto (MoM) (JUN)
0.3%
-0.1%
CBI Trends Selling Prices (JUL)
6.7%
6.6%
U.K. firms may conduct heavy discounting amid weak wage growth paired with the slowdown in private sector consumption, and a dismal CPI reading may instill a more bearish outlook for the GBP/USD as it reduces the BoE’s scope to normalize monetary policy sooner rather than later.
Risk: Bullish Argument/Scenario
Release
Expected
Actual
Gross Domestic Product (YoY) (2Q P)
3.1%
3.2%
Mortgage Approvals (JUN)
63.0K
67.2K
BBA Loans for House Purchases (JUN)
41375
43265
The pickup in private sector lending along with expectations for a faster recovery may generate another stronger-than-expected inflation print, and the pound-dollar may continue to push off of the 200-Day SMA (1.6662) should the data print boost rate expectations.
Read More:
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How To Trade This Event Risk(Video)
Bearish GBP Trade: U.K. CPI Slips to 1.8% or Lower
Need red, five-minute candle following the release to consider a short British Pound trade
If market reaction favors selling sterling, short GBP/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 GBP Trade: Headline Reading for Inflation Tops Market Expectations
Need green, five-minute candle to favor a long GBP/USD trade
Implement same setup as the bearish British Pound trade, just in reverse
Potential Price Targets For The Release
Chart – Created Using FXCM Marketscope 2.0
Break of Bearish RSI Momentum Raises Risk for Bottoming Process
Interim Resistance: 1.6960 (50.0% retracement) to 1.6970 (23.6% retracement)
Interim Support: 1.6630 (50.0% expansion) to 1.6660 (200-Day SMA)
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)
JUN 2014
07/15/2014 8:30 GMT
1.6%
1.9%
+57
+67
June 2014 U.K. Consumer Price Index
The U.K.’s Consumer Price Index (CPI) expanded sharply at an annualized rate of 1.9% in June, beating the average estimate of 1.6%. The core CPI also exceeded market forecast to reach 2.0% from 1.6% the month prior. The print was mostly pushed up by clothing & footwear and food & beverage. The larger-than-expected figure boosted the pound, with the GBP/USD climbing to a high of 1.7190 during the North American trade. However, the GBP/USD consolidated going the close, with the pair ending the day at 1.7146.
— Written by David Song, Currency Analyst and Shuyang Ren
To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.
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Source: Daily fx
