4:30am (NY Time) UK CPI y/y Forecast 1.4% Previous 1.8%
ACTION: GBP/USD BUY 1.6% SELL 1.2%
DEFINITION
“CPI, Consumer Price Index, is a statistical estimate of the movement of the prices of goods and services bought for consumption purposes by households. Its computation uses price data collected for a sample of goods and services from a sample of sales outlets in a sample of locations for a sample of times and estimates of the shares of the different expenditures in the total covered by the index which are usually based upon expenditure data obtained for sampled periods from a sample of households wikipedia).” It is also known as the “True Cost of Living”.
Our surprise factor is 0.2%, if the CPI number increases to a surprise at 1.6% then we will BUY of GBP/USD. If the CPI number decreases to 1.2% or less, we’ll SELL GBP/USD. Historically, even at a different of 0.1% the market tends to overreact. If it does hit our S. Factor, there is 80% of chance it will move 50 pips.
With the recent MPC Rate Decision leaving both Official Interest Rate and the Quantitative Easing program unchanged, Sterling is currently recovering from the 1200 pips loss from the weakened outlook… If this release were to support Sterling with a less than expected decline in inflation, GBP could resume its recovery upwards; however, if we get a less than 1.0% yearly reading, Sterling may start to drop sharply as the outlook does not provide any justification to hold GBP.
UPDATE: We went long based on the better than expected release number, but the market turned on Governor King’s testimony over the Inflation Report Hearing… As King stated that he considered negative effective rates, market went into a quick selling frenzy… Everyone lost pips on this news, but not because of the news, but because of the hearing from King…
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- Canadian Core CPI Trading Plan 05/21/10
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- Trading Canada Core CPI 04/23/10…
{ 10 comments… read them below or add one }
Hi Henry,
What did Gov King say roughly that caused such a sever sell off of the GBP/USD after all those better than expected numbers?
regards Dev.
Devin:
From TTN: (UK) BOE’s King: Does not want bank’s excess reserves unnecessarily high, looking at ways to reduce reserves; would consider lowering deposit rate – Lowering deposit rate would be a “useful supplement” and not a major change
Oh OK, I don’t have access to “readthenews.com” maybe I should. As I’m looking at the GBP/USD (9pm Oz time, Wednesday night)its on its way up to recovery very slowly
Dev.
Hi Henry,
Could you post the video of this trade, please?. Thanks a lot.
fanziano:
sure, I am trying to get to all of the videos as soon as I can.
hi henry. please can you tell me where i can access your weekly outlook where you mentioned about king’s inflation testimony.
Alok:
Sure, you can sign up at my website, newsprofiteer.com for $99 a month… thanks
I bought the GBP/USD on better then expected numbers and it did nothing but go the opposite way. I lost out big time !!!!!
Yeah…. the problem was with the testimony of Governor King at 4:45am, which screwed up the trade…
Devin:
On my weekly outlook I warned about the testimony of Governor King on the yearly inflation report… I guess we got blindsided as the market quickly turned from King’s comments on effective negative deposite rate over the savings…
Henry