CPI Report: How Can You Use It in Trading?CPI Report: How Can You Use It in Trading?
The Consumer Price Index (CPI) report is a vital economic indicator that measures inflation by tracking changes in the prices of goods and services. Understanding CPI data is crucial for traders as it influences interest rates, market trends, and investment strategies. This article delves into the intricacies of the CPI report, explaining its significance and how traders can utilise it in their trading decisions.
Understanding the CPI
Understanding the CPI is crucial for grasping inflation trends and their broader economic implications. The CPI measures the average price change over time, generally a year, quarter, or a month, for a basket of goods and services typically purchased by households.
In the US, the Bureau of Labor Statistics (BLS) collects price data on a wide range of items, including food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services. This data is then weighted based on consumer spending patterns to calculate the Consumer Price Index.
In the UK, the Office for National Statistics (ONS) publishes the CPI, similar to the US model, while the European Union releases both individual country CPIs and a harmonised index for the Eurozone. Australia's CPI is released by the Australian Bureau of Statistics (ABS).
There are two main types of CPI:
1. Headline CPI: This is the most comprehensive measure, including all items in the consumer basket. It captures overall inflation but can be volatile due to fluctuating food and energy prices.
2. Core CPI: This excludes food and energy prices, which are highly volatile. Core CPI provides a clearer view of underlying inflation trends, helping policymakers and traders focus on sustained price changes.
Headline CPI is considered the most important, closely followed by Core CPI. Traders focus on year-over-year (YoY) and month-over-month (MoM) rates, with the YoY headline and core rates receiving the most attention due to their longer-term view of inflation. The YoY rate compares the current CPI with the same month in the previous year, providing a long-term view of inflation trends. The MoM rate compares the current CPI with the previous month, offering a shorter-term perspective. Traders look to these rates to gauge how fast or slow inflation is growing.
CPI and Inflation Rate
CPI is a specific measure of the price level of a fixed basket of goods and services. It provides a snapshot of the cost of a fixed basket of goods and services at a given point in time and is expressed as an integer (e.g. May’s US CPI reads 314.07).
CPI = (Cost of Market Basket in Current Year/Cost of Market Basket in Base Year) x 100
Inflation Rate
The inflation rate is a percentage change that indicates how much the general price level is rising over time.
Inflation Rate = ((CPI in Current Year-CPI in Previous Year)/CPI in Previous Year)x100
In essence, the CPI provides the data needed to calculate the inflation rate, which in turn gives insight into the economic trend of rising prices.
CPI data is critical for policymakers, businesses, and traders. Policymakers use it to adjust economic policies and social security benefits. Businesses use CPI trends to set prices and wages. Understanding the CPI report helps traders gauge inflationary pressures, anticipate monetary policy actions, and adjust their trading strategies accordingly.
Schedule of Releases for the Consumer Price Index
The schedule of Consumer Price Index releases varies across major economies. Below is the CPI release time for the most notable economies:
- United States: Monthly, usually around the middle of the month, released by the Bureau of Labor Statistics (BLS).
- United Kingdom: Monthly, typically around the middle of the month, published by the Office for National Statistics (ONS).
- Eurozone: Monthly, with preliminary data at the end of the month and final data in the middle of the following month, released by Eurostat.
- Individual Eurozone Countries: Monthly, with slight variations; national statistics agencies release individual country data.
- Australia: Quarterly, released by the Australian Bureau of Statistics (ABS).
- Japan: Monthly, typically at the end of the month, published by the Statistics Bureau.
- Canada: Monthly, around the third week of the month, released by Statistics Canada.
CPI Meaning in Forex and Other Markets
Interpreting CPI data is essential for traders aiming to understand inflation trends and their potential market impacts. CPI data helps central banks, like the Federal Reserve in the US, the Bank of England, and the European Central Bank, monitor inflation and adjust monetary policy. Central banks often have a target inflation rate as a sign of a healthy economy. This target informs decisions on interest rates and other monetary policies. In a high CPI environment, where inflation is consistently above the target, central banks may raise interest rates to cool the economy. Conversely, in a low CPI environment, they may lower rates to stimulate spending and investment.
Short-term Implications
In the short term, traders compare actual CPI results with forecasts or consensus estimates, which are available through FXOpen's economic calendar or financial news sites like Bloomberg and CNBC. Whether CPI is higher or lower than the previous month tends to have less bearing for short-term traders.
A weaker-than-expected result, indicating lower inflation, typically weakens a currency and boosts stocks. This is because it suggests future monetary policy will be looser, either through lower interest rates or maintaining current low rates.
Conversely, a higher-than-expected result suggests rising inflation, likely leading to a stronger currency and weaker stock market due to anticipated tighter monetary policy.
If the CPI meets the forecast, the market reaction is usually weak as the data is priced in. However, the currency is expected to rise/fall before the release. For example, if the CPI is expected to be higher, this could strengthen the currency and weaken stocks ahead of the release.
Long-term Implications
Over the long term, the trend in CPI data is more critical. Policymakers typically look for sustained movements in the inflation rate before making significant monetary policy changes. For example, a higher-than-forecast CPI rate might strengthen a currency in the short term, but if it occurs within a longer-term trend of falling inflation, it may not lead to immediate interest rate hikes and the currency is likely to weaken over time, all else being equal.
Additional Considerations
Traders also consider the broader economic context, such as employment data and GDP growth, when interpreting CPI data. For instance, if the labour market is strong (low unemployment) and GDP growth is robust, then a high inflation reading may result in a significant strengthening of a currency since the economy appears to be overheating and may require higher interest rates.
However, as described, the market expectation is generally the most important when trading CPI news. If the market is already expecting a high inflation reading in this scenario, then a weaker-than-forecast CPI report may actually weaken a currency initially, even if inflation remains elevated overall.
Trading the CPI Report
Here are the main steps traders follow when trading CPI reports.
Preparing for the Report
Before the release of the CPI report, it’s crucial to gather insights and projections from analysts. Researching consensus ranges by searching terms like "US CPI May 2024 consensus ranges" can also help traders understand potential deviations from the expected figures, which is useful for understanding what constitutes an expectation vs a surprise.
It’s worth noting that, in periods of low inflation, CPI tends to be more stable and predictable. However, during high or volatile inflation, the market reaction can be more pronounced.
Traders can also monitor leading inflation indicators such as the Producer Price Index (PPI). This indicator reflects the inflationary pressures faced by producers, which can influence the CPI. While these should be used holistically rather than as definitive signals, they can provide valuable context for anticipating CPI movements.
Trading Before the Report
The CPI release is typically one of the most volatile events of the month for stocks and currencies, especially during periods of heightened inflation focus, as seen since 2021. Traders either position themselves based on their expectations or wait for the release to act.
Those taking positions before the release do so several hours before the release to catch the increased volatility, but they close their trades just before the data is out to avoid potential losses due to unexpected market reactions.
Post-Release
Following the release, there are usually two main outcomes: a trend triggered by a surprise or a reversal.
Surprise Outcome
A significant deviation from expectations (higher or lower) can lead to a repricing of assets, resulting in increased market volatility and a change in the price movement. In such scenarios, some traders wait for a pullback as traders take profits. These pullbacks can potentially provide good entry points as long as the underlying data is in line with the trend.
Stop loss placement in a pullback after CPI may be difficult, given there is unlikely to be a nearby swing point. A trader may, therefore, prefer for the high or low originating the pullback to be traded through to enter a position, allowing for a stop loss beyond the pullback’s high or low.
Reversal Outcome
In some cases, there may be a reversal after the initial market reaction. Algorithms might push prices in one direction initially based on the headline reading, only for the trend to reverse as traders examine the underlying details. This is more common with at-forecast headline CPI figures but can also occur with surprises.
Fading the initial strong push can be tricky and requires high conviction in the reversal. Some traders may prefer to wait for the price to close beyond the open of the CPI release candle, which can be a strong indicator that a reversal is truly underway.
GBP/USD Example
In the chart above, we see GBP/USD on April 10th, with US CPI data released at 12:30 pm GMT time. Traders were anticipating signs of falling inflation to bring forward rate cuts from the Federal Reserve. To observe price action for yourself, head over to FXOpen’s free TickTrader platform to access live charts.
Here are the actual vs expected figures:
- CPI YoY: 3.5% (expected 3.4%)
- CPI MoM: 0.4% (expected 0.3%)
- Core CPI YoY: 3.8% (expected 3.7%)
- Core CPI MoM: 0.4% (expected 0.3%)
Each metric exceeded forecasts. This delayed expected Fed rate cuts and strengthened the dollar. Consequently, GBP/USD dropped sharply after the release.
We observed a brief dead cat bounce before the bearish trend resumed for the rest of the day, reinforcing dollar strength for the rest of the week. Notably, this dead cat bounce/pullback presents an ideal entry point.
Waiting for the low to be traded through is a viable strategy; a trader can enter once the low is closed through, with a stop loss set above the pullback high. Presumably, price moving back above an area it previously found resistance in post-release and after a lower low would potentially invalidate the idea.
As seen in the chart above, the release severely damaged hopes of Fed rate cuts, with dollar bullishness persisting for the following days.
The Bottom Line
Understanding the CPI meaning in the stock market and other markets is essential for gauging market trends and economic policies. By analysing CPI data, traders can better navigate the underlying currents of the market and leverage inflation reports for trading. Open an FXOpen account to stay ahead of economic indicators and enhance your trading experience with expert insights and tools.
Frequently Asked Questions
What Does CPI Stand For?
CPI stands for Consumer Price Index. It is a key economic indicator that tracks changes in the prices of a basket of consumer goods and services purchased by households.
What Is the CPI Report?
The Consumer Price Index (CPI) report measures the average change in prices over time for a basket of goods and services. Compiled by national statistics agencies, it provides essential data on inflation, influencing economic policy and monetary policy decisions.
How Does CPI Affect Interest Rates?
CPI data influences central bank decisions on interest rates. Higher-than-expected inflation can lead to increased interest rates to cool the economy, while lower-than-expected inflation might prompt rate cuts to stimulate growth.
How Does CPI Affect Currencies?
CPI impacts currency values by influencing interest rate expectations. Higher CPI readings typically strengthen a currency due to anticipated rate hikes, while lower readings can weaken it as rate cuts become more likely. Traders can infer currency direction from CPI, meaning in forex trading, they might enter a position based on the results of the release.
How Does CPI Affect the Stock Market?
CPI affects the stock market by shaping investor expectations about future economic conditions and monetary policy. Higher inflation can lead to fears of tighter monetary policy, potentially decreasing stock prices, while lower inflation might boost stocks due to anticipated easier monetary policy.
When Does CPI Come Out?
The release schedule for CPI varies by country. For instance, in the US, it is typically released around the middle of each month. Generally speaking, CPI reports are released in the morning of the respective country.
How Often Does the CPI Come Out?
The frequency of CPI releases differs by region. In most major economies, including the US, UK, Eurozone, Japan, and Canada, CPI is released monthly. In Australia and New Zealand, it is published quarterly.
This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Cpireport
CPI Report Disappoints: Bitcoin's Path ForwardWe've had one piece of bad news after another over the past few days. The July CPI report was released, and while it showed a 1% drop in inflation, the Bitcoin market reacted negatively, dropping over 6%. Investors weren't pleased with the CPI report, and to add to the uncertainty, the U.S. government transferred 10,000 Bitcoin to an unknown wallet. It's unclear whether they plan to sell it gradually or hold it in this unknown Coinbase wallet.
Looking ahead, if things go well, Bitcoin could retest the $57,800 level. If we see a bounce from there, the next resistance is around $60,000. If Bitcoin breaks through that, it could signal an upward trend. I'll keep you guys updated.
Market Awaits CPI Impact After Producer Prices Boost Equities Producer Prices Report Lifts Equities Ahead of CPI Data
The price has successfully reached all our previously mentioned targets, and today's movement will be heavily influenced by the CPI release.
Current Outlook:
As long as the price remains below 39,900 and 40,020, the trend indicates a potential downward movement.
Bullish Scenario:
If the CPI comes in below 3.00%, it will likely support a bullish trend, particularly if the price breaks above 40,050, with potential targets at 40,320.
Bearish Scenario:
A bearish outlook will be confirmed if the CPI matches or exceeds 3.00%, especially if the price stabilizes below 39,900, with potential declines to 39,620 and 39,260.
Key Levels:
- Pivot Line: 39,780
- Resistance Levels: 39900, 40050, 40320
- Support Levels: 39620, 39260, 39120
Today's Expected Trading Range:
The price is anticipated to fluctuate between support at 39,260 and resistance at 40,050.
previous idea:
DOGE MONTHLY BREAKOUT? PLUS INV HEAD AND SHOULDERSObserved massive rally after the effects of the CPI report that surge BTC price past 6% and followed by other major coins. Now, I will tackle the possible BINANCE:DOGEUSDT breakout after the rally on the almost 2-month diagonal resistance trendline along with an inverse head and shoulders, a bullish pattern since the coin is on the downtrend that can be a sign of trend reversal for the coin.
Other details for the setup and the approach for DOGE will be discussed in the idea threads below. Stay tuned!
XAUUSD Demand and Supply Zone | 4H TimeframeXAUUSD Demand and Supply Zone | 4H Timeframe
HEY Traders ! hope you are doing well
- This prediction is based on Technical Analysis
- Supply and Demand Zone path elaborated
- Gold touched the supply zone and clearly rejected to now in a bearish circle
- Usd High Impact news are Waiting to moving gold volatile
- Our Target and Our Trend as Shown in our Analysis
- We decided to stick with our idea until gold touched the points 2350-2345-2340.00
- Stick with Trend
- Don't be opposite from Trend
Gold price extends downside as Fed rate cut bets ease17 January 2024
•Gold price has extended its losses to near $2,017 and is expected to decline further towards the psychological support of $2,000.
Technical Analysis: Gold price drops to near 50-day EMA
Gold price continues its downside below $2,020 after Fed Waller's hawkish remarks about interest rates. The near-term demand for Gold is not bullish anymore as the price has dropped below the 20-day Exponential Moving Average (EMA), which trades around $2,036. The yellow metal has found interim support after sliding to near the 50-day EMA, which oscillates near $2,017. The 14-period Relative Strength Index (RSI) is declining towards 40.00, which could offer some cushion. However, a breakdown below the same will lead to the activation of bearish momentum.
• Gold price falls sharply as Fed Waller maintains a higher for longer interest-rates narrative.
• The last leg of high US inflation has turned out to be significantly stubborn.
Guidance from three Fed policymakers and US Retail Sales data are due on Wednesday.
Gold price (XAU/USD) has extended its correction on Wednesday as a hawkish commentary from Federal Reserve (Fed) Governor Christopher Waller has cast doubts about a rate cut by the central bank in the March meeting. Fed policymakers have been favoring interest rates to remain higher for longer, defying market expectations, amid a lack of confidence in inflation returning towards the 2% target in a timely and sustainable manner.
The Consumer Price Index (CPI) data for December indicated that the last leg of high price pressures is quite challenging for Fed policymakers, likely due to steady labor market conditions and decent consumer spending momentum. A quick rate cut decision by the Fed can lead to persistence in inflationary pressures and dampen the work done to achieve price stability.
Later in the day, the performance of the US Dollar, Treasury yields and bullions will be guided by the United States Retail Sales and Industrial Production data for December. The chances for the Fed cutting interest rates in March could ease further if the Retail Sales report comes in stronger than projected.
Daily digest market movers: Gold price falls further ahead of US Retail Sales data
•Gold price has extended its losses to near $2,017 and is expected to decline further towards the psychological support of $2,000.
The downside bias to the gold price has strengthened as investors are uncertain about when the Federal Reserve could start discussing the timeframe for interest rate cuts.
A hawkish commentary from Fed Governor Christopher Waller has raised doubts about whether the central bank will cut interest rates in March.
Christopher Waller commented that the Fed should not rush to take interest rates down until it is ensured that inflation will return to the 2% target in a sustainable manner.
Waller added that the Fed should proceed with rate cuts "methodically and carefully" to bail out the economy from an expected slowdown. He further added that resilience in the US economy could delay potential reductions in borrowing costs.
Fed policymakers have become more determined to maintain a restrictive interest rate stance as the December inflation data turned out surprisingly stubborn.
• After Waller's commentary, Investment banking firm Goldman Sachs said the Fed could cut rates somewhat later or might announce one cut each quarter from April.
Meanwhile, bets supporting a rate cut by the Fed in March have dropped further. As per the CME Fedwatch tool, trades see a 61.4% chance for a 25-basis points (bps) interest rate cut in March, down from 70% at the start of the week.
• The increase in the US Dollar Index (DXY) also weighed on the gold price. The USD Index has slightly corrected after posting a fresh monthly high above 103.50.
•Further action in the US Dollar will be guided by the United States Retail Sales and Industrial Production data for December.
• Investors have projected that Retail Sales increased by 0.4%, higher than the 0.3% rise in November. Industrial Production is seen stagnant after rising 0.2% in November.
Apart from the US economic data, Fed's Beige Book and fresh outlook on interest rates from Fed speakers will be keenly watched. On Wednesday, Fed's Michael Barr, Michelle Bowman, and John Williams are due to speak.
Fed policymakers are expected to endorse a restrictive monetary policy stance for a longer period than what is anticipated by market participants.
ETH/USD After Recent CPI Report🚀 Ethereum Analysis Update - Buckle Up! 🌙
1.)Waxing Moon Influence: 🌔 The mystical waxing moon cycle has graced us! Brace yourselves for potential shifts in market dynamics. History shows it can be a game-changer, so keep a keen eye on its impact.
2.)Bearish Divergence Alert: 📉 A bearish divergence is playing out on the daily chart - the market's way of whispering potential caution. Bulls, be on guard! 🐂🚨
3.)Bollinger Band Potential Rejection: 💥 The Bollinger Bands are hinting at a possible rejection. Are we in for a bounce or a breakdown? Time to read the signs! 📊🧐
4.)CPI Report Surprises - Inflation Gets Sticky: 📈🔥 Surprise, surprise! The latest CPI report came in higher than expected, signaling that inflation is getting sticky. Brace for potential turbulence as the Federal Reserve contemplates interest rates. How will Ethereum dance to the inflation tune now? 🕺💸
Stay vigilant, traders! 🚨 Your favorite crypto might be gearing up for a thrilling ride. As always, DYOR (Do Your Own Research) and trade wisely! 💼💰 #Ethereum #CryptoAnalysis #MoonCycleMagic 🚀🌙
SPY S&P 500 ETF 2023 Forecast. CPI Report PredictionAfter those Put options went to the target:
My timeline for SPY S&P 500 ETF after the CPI report on Feb 14 is this:
1. CPI data will come better than expected. The medium forecast in 6.2, I expect 6 - 6.1.
- The market will be exuberant afterwards and SPY will reach $431 by March 1st, thinking that the FED won the fight against inflation.
2. While inflation continues to be sticky in March, the FED will continue increasing interest rates and won`t stop until something cracks in the economy. Another 25bps increase.
- The market is expected to react and the SPY will reach $376.
3. They year will end in a positive note, the was in Ukraine will end and the supply chain disruption that was one of the factors of high inflation, will be restored. Inflation don to 3%.
My prediction for SPY by the end of the year is $436, a 15% increase YOY.
Looking forward to read your opinion about it!
USDJPY I Potential upside and CPI Report ForecastWelcome back! Let me know your thoughts in the comments!
** USDJPY Analysis - Listen to video!
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