What’s
Expected:
Time of release: 08/15/2012 12:30 GMT, 8:30 EDT
Primary Pair Impact: EURUSD
Expected: 1.5%
Previous: 1.7%
DailyFX Forecast: 1.5%
to 1.7%
Why Is This Event
Important:
Consumer prices in the U.S. are expected to
expand 1.5% in July after climbing 1.7% the month prior, and easing price
pressures may heighten expectations for additional monetary support as the Fed
maintains a cautious outlook for the world’s largest economy. At the same time,
the core rate of inflation is expected to hold steady at 2.2% for the second
consecutive month, and the stickiness in underlying inflation may instill a
bullish outlook for the U.S. dollar as it limits the Fed’s scope to expand its
balance sheet further. In turn, an in-line print across the CPI figures may
produce whipsaw-like price action in the greenback, but we will be keeping a
close eye on the core reading as it continues to hold above the 2% target for
inflation.
Recent Economic
Developments
The
Upside
|
Release
|
Expected
|
Actual
|
|
Advance Retail Sales
(JUL)
|
0.3%
|
0.8%
|
|
Produce Price Index ex
Food & Energy (YoY) (JUL)
|
2.3%
|
2.5%
|
|
Personal Income
(JUN)
|
0.4%
|
0.5%
|
The
Downside
|
Release
|
Expected
|
Actual
|
|
NFIB Small Business
Optimism (JUL)
|
91.6
|
91.2
|
|
Wholesale Inventories
(JUN)
|
0.3%
|
-0.2%
|
|
Unemployment Rate
(JUL)
|
8.2%
|
8.3%
|
The rebound in household spending paired with
the uptick in wage growth may encourage businesses to pass on higher costs onto
consumers, and a strong inflation print may encourage the Fed to soften its
dovish tone for monetary policy as the recovery gradually gathers pace. However,
as high unemployment along with the ongoing slack within the real economy
dampens the outlook for private sector consumption, firms may continue to
conduct heavy discounting to draw demands, and easing price pressures may weigh
on the greenback as it fuels speculation for more quantitative easing.
Potential Price Targets For The Release
As the EURUSD fails to put in a close above the
50-Day SMA (1.2392), the pair appears to be carving out a lower high in August,
and we may see the pair give back the rebound from July (1.2041) as the downward
trend carried over from the previous year continues to take shape. However,
there appears to be a bullish divergence in the relative strength index as the
oscillator continues to move away from oversold territory, and a soft inflation
print may produce a meaningful move above the 1.2400 figure as it fuels
speculation for QE3. For a complete technical outlook including intra-day scalp
targets, refer to yesterday's Winners/Losers
report.
Trading the given event risk may not be as
clear cut as some of our previous trades amid the deviation in market
expectations, but a stronger headline and core print could pave the way for a
long U.S. dollar trade as it dampens the scope for QE3. Therefore, if the
inflation report tops forecast, we will need a red, five-minute candle following
the release to establish a sell entry on two-lots of EURUSD. Once these
conditions are met, we will set the initial stop at the nearby swing high or a
reasonable distance from the entry, and this risk will generate our first
objective. The second target will be based on discretion, and we will move the
stop on the second lot to breakeven once the first trade hits its mark in an
effort to lock-in our gains.
However, the ongoing weakness in the labor
market paired with the persist slack within the real economy may continue to
drag on price growth, and a soft inflation report may fuel expectations for more
quantitative easing as the Fed keeps the door open to expand its balance sheet
further. As a result, if price growth tapers off in July, we will carry out the
same setup for a long euro-dollar trade as the short position mentioned above,
just in the opposite direction.
Impact that the U.S. Consumer Price report has had on USD during the
last month
|
Period
|
Data Released
|
Estimate
|
Actual
|
Pips Change
(1 Hour post event )
|
Pips Change
(End of Day post event)
|
|
JUN 2012
|
07/17/2012 12:30
GMT
|
1.6%
|
1.7%
|
+9
|
+18
|
June 2012
U.S. Consumer Price Index
Consumer prices in the world’s largest economy
increased an annualized 1.7% for the second consecutive month in June, while the
core rate of inflation advanced 2.2% during the same period to mark the slowest
pace of growth since February. Indeed, the initial reaction was fairly muted,
with the EURUSD maintain the narrow range ahead of the release, but the
greenback struggled to hold its ground throughout the North American trade as
the pair closed at 1.2292.
