The Big Events of the Week – Part 1, Inflation

Posted Monday, October 17, 2016 by
Skerdian Meta • 2 min read

One of the most important events this week will be the release of the inflation data. In relation with forex, inflation is always very important for that matter. Inflation or the price stability as it is referred is one of the official mandates of any central bank in the world, hence the tight relation with forex. This week is packed with inflation reports from many countries, so let´s have a look at them. 

Monday (EU) The inflation report for the Eurozone was just published a while ago. The headline number as well as the core, came out exactly as expected at 0.4% and 0.8% year/year. The inflation for September jumped by 0.4%, 0.2% higher than in August, which shows an ascending trend. These numbers are usually overshadowed by the German inflation figures, so although this is the highest since 2014 the impact on the Euro was minimal. We must keep an eye on the EU inflation numbers in the coming months because the ECB (European Central Bank) is giving us sporadic signals that the QE programme might be coming to an end and if the inflation jumps higher then here comes the tapering process. 

Tuesday (UK, US) – Tomorrow is another big day for inflation geeks like me. The UK inflation report will be released at 08:30 GMT and it includes the CPI (consumer price index), PPI (producer price index) and RPI (retail price index). This report will be tricky for the GBP because the 20% decline in the value of the Pound has had its effect on the prices since the UK is a net importer of goods. The expectations are for a substantial jump, particularly the CPI number, but that´s priced in by the market so I don´t expect the GBP to rally, unless we see fireworks from the inflation numbers. The risk lies on the downside, if the report is even slightly dovish then the negative sentiment in GBP pairs will increase and we know what happens to the Pound next.

Personally, I´m hoping for a better report. That would help the GBP recover some of the recent losses, but sooner or later the jump will fade and that´s when I´d love to sell GBP/USD. Anyway, we will update you guys again tomorrow about our trading strategy for the UK and US inflation publications.

Speaking of US inflation, the CPI numbers will be published tomorrow in the afternoon. But, I don´t expect much reaction from the USD because the December interest rate hike is written in the stone now and nothing can affect the FED decision, unless the numbers are really horrible, which I don´t think will be the case.

Friday (Canada) The Canadian CPI numbers on Friday will wrap the inflation reports for the week. With the higher petrol prices in the last few months and with Canada being one of the largest oil producers, the inflation is expected to jump by 0.2%.

The CAD might enjoy some benefits from higher inflation numbers, but don´t forget that the BOC (Bank of Canada) meeting is due on Wednesday. It´s likely that the forex market will take all the food it needs for the entire week from that meeting, which will reduce the appetite for action on Friday when the inflation report will be released. But as I said above, we will be here to analyze the inflation numbers before and after the release, so tune in for possible trade ideas. 


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