CPI vs price on GPBUSD

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 ?


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.

Thank you Andrew,

I must admit that your reply takes away a litle part of my confidence in news trading.

Until a month ago I was 100% technical. Then i realised that curency moves according to macro - economy so I began studying the news to find the reasons for an up/down trend. Once I would establish a predisposition for an uptrend for example, I would watch the indicators only for long positions…

Now I am again confused… The news move the price but not right away … :mad:

Anyway, can you point out the very important news that will actually move the market?..capable of turning trends kind…

Thank you again


Hi Necre,
It sounds like your development as a trader is going well: the tension between technical v. fundamental trading and harmonizing the two with some kind of balance is a difficulty topic with which to tangle. There are those on this forum who espouse 100% technical trading, while there are others who favor news releases (though not as many), and then there are those who trying to find an analytical compromise between the two.

The babypips school has it right: neither one or the other, but using both is best. Of course the question that immediately crops up is: how? That is where thing become difficult, and the reason traders typically pick one side of the coin or the other.

Speaking from my own background, I began actively participating in financial markets by investing (not trading) in stocks. I did a lot of reading, and eventually came to rely on a fair understanding of market and company fundamentals to make my investment choices. Technical analysis here was limited to finding where the 200-day moving average was, really.

Actively trading changed all of that, and I eventually become a mostly technical trader. But, as you say, fundamentals moves currencies; so I’ve always made it a point to review that side of the equation as well.

The issue, though, is that some traders taking acknowledgement of fundamentals in the direction of day trading news releases; which has always been risky in retail forex (of which we are a part) but now more than ever because of dynamic spreads, market/stop order slippage, lack of trailing stops at a lot of brokers, etc. You don’t seem to be “scalping news”, which in my opinion is a very good thing. Those gamblers care little for actual fundamentals, only for exploiting the knee-jerk psychological reaction of the wider market that produces volatility when positive or negative news is released.

Rarely if ever will a single news release change the long-term outlook for a pair: there too many other variables out there - other releases, speeches, geo-political developments, responsiveness to other markets (oil, gold, etc.) - that serve to dilute the power of any one release. As mentioned earlier, the fundamental landscape is very complex.

But then, once you get down to the limited timeframe in which the release occurs, the market can respond contrary to what seems sensible, which can really fake a trader out. Remember, the market isn’t as orderly and rational as you are when a release comes out: this is evidence with the volatility that sends a pair flying all over the place. So, you can at times predict where the market will go - even if the release lines up fundamentally with the market direction you’ve chosen - but doing it with consistency and profiting from it without being stopped out first is very difficult. If you wait for a trend to emerge/reemerge after a news release, you’ll miss the volatility, but can then potentially trade the fundamental picture with reduced risk and trend follow the momentum. This is a much better road, and sounds similar to what you’ve been doing.

Very important news that will move the market (will vary from pair to pair): NFP, any central bank rate decision, CPI, PPI, PCEPI, annualized GDP, retail sales…

Sorry for the long reply. :slight_smile:

Hi there,

First of all, I want to say WOW… then THANK YOU… for taking so much of your time to reply to my postings.

From your last post, i can see that You have great experience riding the seas of forex…

Having in view my determination to evolve, i ask you if there is a thread from which I can “steal” some of your technical/fundamental expertise…

Hope to hear from you soon.


PS> Sorry for my late reply - I am not that active on this forum…