4:30am (NY Time) UK CPI y/y Forecast 1.8% Previous 1.5%
ACTION: GBP/USD BUY 2.1% SELL 1.5%
Today we’ll focus on the CPI release once again out of UK and our surprise factor (or deviation) is at 0.3%. If the yearly Inflation number increases to a surprise of 2.1%, which is over BOE’s inflation target, we will BUY of GBP/USD. If the Inflation number decreases to 1.5% or remain at the same level as last release, we’ll look to SELL GBP/USD. Historically, even at a difference of 0.1%, we should see market overreaction. If our deviation is hit, there is a probability of over 80% that the market will move 50 pips within the next 30 minutes.
The psychological level for the yearly CPI is obviously at the 2.0% level. If CPI rises above the 2.0%, we could see accelerated demand on Sterling. There should also be pre-market sentiment pricing in a short-term bullish GBP, therefore if the number is at 1.5% or less, strong sell-off based on BUY on Rumor Sell on News should also be a huge possibility.
“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”.
UPDATE: CPI came out just 0.1% better than expected. With the market getting significantly thinner in liquidity, I decided to stay out of the market for this trade.