Trading the News: Euro-Zone Consumer Price Index (CPI)
A further slowdown in the Euro-Zone’s Consumer Price Index (CPI) may prompt fresh monthly lows in the EUR/USD as it puts increased pressure on the European Central Bank (ECB) to implement more non-standard measures.
What’s Expected:
Why Is This Event Important:
The ECB may continue to push monetary policy into uncharted territory as the Governing Council struggles to achieve its one and only mandate to deliver price stability, and the bearish sentiment surrounding the Euro may gather pace throughout the remainder of the year amid the weakening outlook for growth and inflation.
However, the unprecedented steps taken by the ECB may help to mitigate the downside risk for inflation, and a better-than-expected release may generate a more meaningful rebound in the Euro as it curbs bets of seeing a new wave of monetary support.
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How To Trade This Event Risk(Video)
Bearish EUR Trade: Headline & Core CPI Highlight Greater Threat for Deflation
- Need red, five-minute candle following the release to consider a short EUR/USD trade
- If market reaction favors selling euro, short EUR/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 EUR Trade: Euro-Zone Inflation Tops Market Expectations
- Need green, five-minute candle to favor a long EUR/USD trade
- Implement same setup as the bearish euro trade, just in opposite direction
Potential Price Targets For The Release
EUR/USD Daily
- Downside targets remain favored as RSI retains bearish momentum & pushes deeper into oversold territory
- Interim Resistance: 1.3010 (50.0% retracement) to 1.3020 (23.6% expansion)
- Interim Support: 1.2590 (100% expansion) to 1.2600 pivot
Impact that the Euro-Zone CPI report has had on EUR during the last release
Period Data Released Estimate Actual Pips Change(1 Hour post event ) Pips Change (End of Day post event) AUG 201408/29/2014 9:00 GMT0.3%0.3%0-44
The Euro-Zone’s annualized Consumer Price Index (CPI) continued the downward trend and slipped to a 5-year low of 0.3% from 0.4% the month prior, while the core inflation rate unexpectedly rose 0.9% during the same period amid forecasts for a 0.8% print. The ongoing weakness in price growth may put increased pressure on the European Central Bank (ECB) to implement its own quantitative easing program amid the growing threat for deflation. Nevertheless, the initial reaction in the EUR/USD was short-lived as the pair consolidated around 1.3182 following the release, but the euro-dollar came under increased pressure during the North American trade as it ended the day at 1.3133.