USA CPI data : How will USD fair?


The markets are closely monitoring the Canadian Manufacturing Sales and US CPI this afternoon. What does this mean for the currency traders? What does it mean for the USD?

18th October AtoZForex — Reported earlier in the forex trading tips, traders should trade cautiously when there are several news events released simultaneously.  Today is such a day, with the Canadian Manufacturing Sales, the US CPI and the Core US CPI data releases.

Canadian Manufacturing Sales

What can traders expect?

Firstly, we have to start with what was the previous data and what market expectation is, what is referred to as the forecast.  For this economic indicator the market expects an increase in Manufacturing Sales from the previous month (0.1%) to 0.3%(forecast).  This means economic conditions are good and production is on the rise, employment in check etc.

Scenarios

Normally, the market expectation for what has been forecast to be reached, however, for currency traders a figure greater than that forecast is an indication and signifies that the Canadian dollar (CAD) will appreciates.  What you could experience in reality is the following,

  • Sales expand and meet expectation, however, no real movement on the CAD or CAD appreciates
  • Sales expand and meet expectation, however, the market views this as not exceeding the target and CAD depreciates
  • Sales expand and lower than expectation, the market views this as negative and CAD depreciates
  • Sales contract and do not meet expectation, the market views this as negative and CAD depreciates

This is what is referred to as “emotional trading ” kicking in and why traders should trade cautiously as these price movement are extremely quick.

AtoZforex Hint: Wait we are not finished. Oops, we almost forgot the US CPI economic indicators. There are two of them. 

USA Consumer Price Index (CPI)

What is it and how is it derived?

This measures the change in the price of goods and services purchased by consumers and by sampling the average price of various goods and services then comparing it to the previous sampling.  The market expects an increase (forecast 0.3%) in the CPI compared to previous month (0.2%).  This means increased inflation and odds for Fed rate hike.

USA Core Consumer Price Index (CPI)

What is it and how is it derived?

This is the same as the USA CPI mentioned above, with the following difference,  it excludes the food and energy prices and derived in the same manner. The market expects a drop (forecast 0.2%) in the CPI compared to previous month (0.3%).  This means decrease in inflation and odds for no Fed rate hike.

Which CPI to concentrate on?

So now we can see mixed expectations, which data do traders lean on? The Core CPI is also referred to as the underlying CPI and take note of the key word “underlying”.  With food and energy prices can be volatile and account for approximately twenty-five percent of CPI, this results in distortion of the underlying trend.

The FOMC usually pays the more attention to the Core data and so should traders.

Barclays outlook

Barclays forecast the US CPI to increase 0.4% m/m compared to the general market expectation of 0.3% and, expects a strong increase 0.2% m/m in the US Core CPI in line with market expectation.  Barclays added…

 “We think that both events should be supportive for the USD versus G3 currencies but neutral for EM.”

AtoZforex Hint: Do not trade on a single news event look at the total picture when news releases are at similar times. 

Think we missed something? Let us know in the comments section below.

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