Trading the News: German Consumer Price Index (CPI)
Signs of slowing inflation in Europe’s largest economy may drag on EUR/USD and push the European Central Bank (ECB) to broaden its quantitative easing (QE) program as it undermines the Governing Council’s scope to achieve its one and only mandate for price stability.
What’s Expected:
Why Is This Event Important:
The weakening outlook for global growth accompanied by the renewed decline in energy prices may encourage ECB President Mario Draghi to adopt a more dovish outlook at the September 3rd policy meeting, and the single currency remains at risk of facing additional headwinds over the near to medium-term should the central bank show a greater willingness to further embark on its easing cycle.
Expectations: Bearish Argument/Scenario
Release | Expected | Actual |
Private Consumption (QoQ) (2Q) | 0.3% | 0.2% |
Producer Price Index (YoY) (JUL) | -1.3% | -1.3% |
Retail Sales (MoM) (JUN) | 0.3% | -2.3% |
Waning confidence paired with the ongoing weakness in household consumption may encourage U.S. firms to offer discounted prices, and a marked downtick in the CPI may generate a bearish reaction in the greenback as it drags on interest rate expectations.
Risk: Bullish Argument/Scenario
Release | Expected | Actual |
IFO Business Climate (AUG) | 107.6 | 108.3 |
Purchasing Manager Index- Composite (AUG P) | 53.6 | 54.0 |
Factory Orders (MoM) (JUN) | 0.3% | 2.0% |
Nevertheless, the expansion in service-based activity along with the pickup in private-sector credit may encourage a sticky inflation print, and a positive development may boost the appeal of the reserve currency as the Fed remains on courses to normalize monetary policy in 2015.
How To Trade This Event Risk(Video)
Bearish USD Trade: U.S. Headline & Core CPI Show Greater Risk for Disinflation
- Need to see green, five-minute candle following the release to consider a long trade on EUR/USD.
- If market reaction favors a bearish dollar trade, buy EUR/USD with two separate position.
- Set stop at the near-by swing low/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 USD Trade: Consumer Price Index Exceeds Market Forecast
- Need red, five-minute candle to favor a short EUR/USD trade.
- Implement same setup as the bearish dollar trade, just in reverse.
Potential Price Targets For The Release
EURUSD Daily
Chart - Created Using FXCM Marketscope 2.0
- EUR/USD remains at risk of giving back the advance from earlier this month amid the recent series of lower highs & lows, but need a move back below former resistance 1.1180 (23.6% retracement) to 1.1210 (61.8% retracement) accompanied by a break of the bullish RSI momentum to favor a resumption of the long-term bearish trend.
- DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short EUR/USD since March 9, but the ratio remains off of recent extremes as it narrows to -1.67, with 38% of traders long.
- Interim Resistance: 1.1760 (61.8% retracement) to 1.1810 (38.2% retracement)
- Interim Support: Interim Support: 1.0790 (50% expansion) to 1.0800 (23.6% expansion)
Read More:
Price & Time: Downside Retest Coming Up For USD/JPY?
GBPUSD Low Volatility Period Ends- Reversal Scalp Faces 1.5450 Hurdle
Impact that Germany CPI has had on EUR/USD during the last release
Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
JUL P 2015 | 07/30/2015 12:05 GMT | 0.3% | 0.2% | -17 | -28 |
July 2015 Germany Consumer Price Index
Germany’s Consumer Price Index (CPI) fell short of market expectations as the headline print slowed to an annualized 0.2% from 0.3% the month prior. As a result, the European Central Bank (ECB) may continue endorse its pledge to ‘fully implement’ its quantitative easing (QE) program until September 2016, and the Governing Council may keep the door open to further embark on its easing cycle amid the disinflationary environment across the major industrialized economies. The Euro edged lower following the worse-than-expected print, with EUR/USD losing ground throughout the North American trade to end the day at 1.0929.