The market is anticipating a major event this week that I never miss: the release of Consumer Price Index (CPI) data. We often hear about this indicator, but do we really know how to use it to our advantage? Here's my quick guide to following CPI ("CPIWatch") and how I prepare for it to make more informed trading decisions. 👇
🔍 What is CPI in a Nutshell?
The Consumer Price Index (CPI) is the most important measure of inflation, tracking the change in prices of a "basket" of goods and services we buy daily (food, energy, rent, clothing, etc.). In other words: It is the official gauge of the cost of living.
⚙️ Why Does the Market Care About This Number?
Simply because central banks (like the US Federal Reserve) rely on it to decide the fate of interest rates.
· If CPI rises more than expected (runaway inflation) → The Fed may hike rates → Strength for the currency (often the dollar) and potential pressure on risk assets.
· If CPI falls or comes in lower than expected → They may pause or cut rates → Potential weakness for the currency and a possible boost for markets.
📈 How Do I Prepare and Trade the News (My Personal Approach)?
I don't just trade the number; I watch for "surprises" and the market's reaction:
1. Before the news: I identify key support and resistance levels on pairs like EUR/USD or on BTC. The market often freezes in anticipation.
2. At the news moment:
· Positive surprise (CPI higher): I don't rush; I wait for confirmation of breaks in supply/demand zones. Sometimes it's a quick spike followed by a reversal.
· Negative surprise (CPI lower): I might look toward commodities (like gold) or currencies considered higher-risk, always waiting for confirmation.
3. After the news: More important than the number itself is the market's reaction and analysts' interpretations. Does the market believe this number will actually change the Fed's policy? That sentiment often determines the direction for the coming days.
My advice: Don't trade based on a single indicator alone. Combining CPI analysis with technical analysis and solid risk management is the key to long-term success.
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