Quote:
Originally Posted by necre
Hi there,
Today, 12 Aug 08, at 10 30 GMT Consumer Price Index was released. Having in view that the 4.4% value was grater the expected (around only 4%), I was convinced that the pound will shoot up despite de bearish trend. The reason I thought so is because "consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates ". So, high CPI = High inflation = high intrest rate...
What I don`t understand is WHY the next second after de news, I have a big 80 pip bearish candle on my screen... WHAT HAPPENED ?
Necre
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CPI releases are always accompanied by significant event volatility, consequently carrying a lot of risk. Your equation ("high CPI = High inflation = high intrest rate") isn't wrong, per se: but the fundamental landscape here is more complex than the details of a single release. Moreover, the market hardly ever synthesizes a rational response as quickly as the individual trader, which can have the unintended and counterintuitive result of turning a correct apprehension of economic developments into a losing trade. Really then, speculation that a CPI print higher than analyst consensus will pound (bad pun, I know) out a bottom and produce any kind of meaningful rally is something of a gamble.