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Core Consumer price Index (CPI) released on January 16, 2014

Posted By : Forex Expert

More Fundamental Analysis By This Expert (9)

Posted At: 2014-01-20

Core Consumer price Index (CPI) is one of the most important economic indicators. This indicator is, monthly released by the Bureau of Labor statistics, widely awaited and watched because it helps to determine the changes in cost of living. Core CPI calculates changes in prices of goods and services excluding food and energy.


Core CPI is a key determinant of interest rate policy of Fed, hedging decisions of financial institutions, investment decisions of individual investors because current yield should be higher than the inflation otherwise real wealth of the investor will fall, formation of federal income tax structure, and wage adjustment by employer.


Core CPI significantly affects the fixed income securities, fixed bonds payments, fixed annuities, and pension plans. The central bank generally target to maintain the core inflation at or below 2%.  

The Core CPI remained between 0.1% - 0.2% since January 2013 as painted in the graph.  Modest and steady inflation is an indication of growing economy.



CPI increased 0.3% in December as compared to 0.0% on a seasonally adjusted basis as reported by the Bureau of Labor statistics. CPI (including energy and food) increased 1.5% over the last 12 months. The energy index rose 2.1% due to rise in gasoline, fuel oil, and electricity indexes and increase in these indexes resulted in increase in CPI.

The tobacco, apparel and personal care indexes rose in December while the household furnishing & operations, recreation, and airline fares indexes dropped during the month under discussion. The overall Core CPI (excluding energy and food indexes) rose 0.2% because the increases in indexes are more than offset decrease in indexes as mentioned earlier.  Core CPI met expectations as it is increased 1.7% over the last 12 months. US Dollar inched lower against Euro and other major counterparts after the release of CPI figure by the Bureau of Labor statistics

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advanced technical analysis of GBP/USD December 30, 2014

It is suggested to take long position GBP/USD. It is most likely that GBP/USD will bounce back shortly on the way to the resistance lines located at 1.5575 and 1.5640


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How to trade forex news

In the forex market, news and reports are usually the cause of major movements. Due to this, it’s no surprise that some traders wait for the release of high impact news to benefit from big market moves. Nonetheless, if you lack the necessary skills and strategies of trading news successfully, you should stay away from the market at those times.

Here is a work plan to assist you earn some pips from news trading.

Why market moves during news

Before and after major news has been released, the forex market usually experiences much movement. This is caused by the many number of traders who enter and exit positions during such times. Because these traders want to execute their orders are prices they deem best, this often results in massive movements during the release of significant economic news.

Now, trading forex news seems to be lucrative. However, you must be careful because the high activity in the market during such times can cause detrimental harm to your trading account. As such, you need to be prepared ahead of time to reap maximum rewards from the big market moves.

How to identify major market news

Importantly, you should know when the big news announcements are going to be released and program yourself accordingly. There are several online news sites and various online tools you can use to assist you in knowing when a high impact news is about to come out. And, they are usually differentiated as High Impact.

The major market news are those which historically have caused forex prices to fluctuate greatly. Examples include the Non-farm Payroll Report, Federal Reserve Minutes or the European Central Bank Rate Decision.

You should keep yourself updated on the happenings in the market so that you cannot miss the major announcements.

It is worth mentioning that all economic announcements do not cause equal movements in the market. So, knowing the differences will enable you concentrate only on the important ones.

Trading the news

Before any market news is released, there is usually what the expectations for the values are. The expectations are essential since the market has possibly banked in the expectations. As such, if the actual figures of the released announcements are exactly the same as the expectations, the market would not experience much movement. On the other hand, if the economic announcements are far above or below the expectations, then the market is likely to experience much movement. Therefore, you should be prepared to enter the market if this trading style resonates well with your personality.

Regardless of whether you have a long-term or short-term strategy, you should know how the actual announcement is the same or outside the expectations. If the announcement is released according to expectations, then your approach to the market should not be the same as when it is outside expectations.

How to trade when release is according to expectations

Even if the announcement is according to expectations, it is still likely that the market will experience some fluctuations. To take advantage of such moves, you can plot support and resistance levels, chart patterns or trend lines on the charts and use them to identify trade opportunities. If price reaches the significant levels and hold, you can open a position and put your stop loss levels accordingly. On the other hand, if a break out occurs past the key chart levels, you can also enter a position and ride the profits.

It’s important to note that you should not place a news trade immediately the announcement has been made. Keep off for some minutes to allow the market to settle and clear moves to develop before plunging in the market.

How to trade when release is outside expectations

If the numbers are way above or below the expectations, the market is likely to experience big moves. In such situations, you can locate breakout levels to enter sell or buy orders.

If there is a clear trend line break after news release, you have an opportunity to enter a trade. In most cases, a clear trend line break will occur only on high volatility situations caused by news way above or below the expectations. If you enter such a trade, you can place a stop loss above the trend line to protect you in case the trend resumes.