Trading The UK CPI Y/Y Release, August 18, 2015
UK CPI y/y release could provide some directional guidance for the sterling as recent China devaluation has caused uncertainty in its trading pattern. If we get a stronger release, GBP should gain as traders expect a rate hike by BOE soon…
4:30am NY Time UK CPI y/y Forecast 0.0% Previous 0.0% DEVIATION: 0.3% (BUY GBP 0.3% / SELL GBP -0.3%)
The Trade Plan We are looking for a variable deviation of 0.3%. If the inflation number remained above 0.3%, we will BUY GBP. If the inflation number decreases to -0.3% or less, we’ll look to SELL GBP. Historically, even with a slight difference of 0.1%, market usually overreacts. If our deviation is hit, there is a strong possibility that the market will move 50 pips immediately.
I’d recommend to use the Recommended Pairs from above as they are based on my CSM, which should provide the best combination of currency pairs to trade based on better/worse news… of course, you can also trade the default pair: GBP/USD.
Outlook Score Outlook score is derived from market sentiment, focus, and economic indicators for the currency. It represents the long-term trend of the currency and its market perception. In short, a strong Outlook Score means more long-term demand for the currency, and a weak Outlook Score is the opposite.
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.”