Home Forex Event Trading Guide: Looking at the U.S. Dollar Index Ahead of CPI

Event Trading Guide: Looking at the U.S. Dollar Index Ahead of CPI

by ForexGuy
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All eyes and ears are on this week’s US CPI release!

Here’s what happened in the last release, how the USD reacted, and what to expect this time around.

what happened before?

  • Headline CPI rose 0.4% m/m in September, compared with a predicted 0.1% increase
  • Annual CPI fell from 8.3% to 8.2% compared to an estimated figure of 8.1%
  • Core CPI posted a further 0.6% month-over-month gain in September against consensus of 0.4%

Following strong August inflation, the September CPI report also disappointed the market.

Headline inflation rose 0.4% m/m, while the annual CPI fell slightly to 8.2% from 8.3%. Core CPI, on the other hand, showed an additional 0.6% month-on-month increase against an estimated 0.4% increase.

Components of the September CPI report revealed that rising shelter, food, and medical costs were the main drivers of gains. These were more than enough to offset the sharp drop in gasoline and energy prices during the month.

US Dollar Index (USDX) 15 minute chart

Unsurprisingly, the US dollar rose across the board after seeing these unexpected gains. In the end, stronger inflation confirmed his Fed’s deal to raise rates further by 0.75%, which the central bank has implemented this month.

Interestingly, Greenback was able to return these profits (and more!) before the end of the trading session.

What do you expect this time?

  • Headline CPI rises from 0.4% to 0.6% m/m in October
  • Annual CPI fell from 8.2% to 7.9%
  • Core CPI fell to 0.5% m/m from 0.6%

Price pressure is expected to rise by 0.4% to 0.6% m/m in October, but is expected to ease a bit further in October.

Annual CPI is projected to drop from 8.2% to 7.9%, while core CPI could drop from 0.6% to 0.5%. Leading indicators such as the S&P Composite PMI reflect weakness in the price component in October.

A weaker-than-expected actual result could confirm that the Fed’s aggressive tightening moves are already starting to take effect, reinforcing the view that it’s time for a pivot.

Even key figure Powell himself admitted the committee could consider a smaller rate hike next time!

Since this could revive hopes for another 0.75% rate hike, unlikely but stronger than expected data could spur yet another leg higher for the Greenback. not.

US Dollar Index (USDX) 4 Hour Chart

US Dollar Index (USDX) 4 Hour Chart

A look at the US dollar index shows that the currency is trending downward. The dollar trader may be taking bets ahead of the CPI release, taking into account his latest FOMC remarks.

Technical indicators are mixed, with moving averages flexing a new bearish crossover and stochastic signaling drying up among sellers.

Either way, practice good risk management when trading this!

This content is strictly for informational purposes only and does not constitute investment advice. Trading in the financial markets involves risk. Please read the Risk Disclosure to understand the associated risks.

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