Article Summary: The USD is in a state of transition for 2013. With CPI being released on Thursday, traders will await the announcement to determine market direction.
The Consumer Price Index, better known as the acronym CPI, is released on a monthly basis by most major economies to give a timely glimpse into current growth and inflation levels. Inflation tracked through CPI looks specifically at purchasing power and the rise of prices of goods and services in an economy which can be used to influence a nation’s monetary policy. The United States is set to release CPI data later this week, on Thursday February21stat 91330 pm GMT, as noted on the DailyFX economic calendar.
Below you will see a chart displaying the historic results of CPI (YoY) for the United States. This month, expectations are set at 1.7 % growth compared relatively to last year’s data. If CPI is released higher or lower than expectations this news event does have the ability to influence the market.One way we can interpret its affects is by monitoring the USDollar Index.
Below you can see a chart of the Dow Jones FXCM USDollar Index (USDollar). This index is an equal weighted index comprised of four USD based pairs and is a great way to get a general sentiment of the market. The Index is currently residing on a major line of psychological resistance near 10,300. This price has not been tested since the 2012 high for the Index at 10,323.
If CPI is released away from expectations, it is reasonable to believe this may be the catalyst to drive the Index to fresh highs, or to rebound from resistance. Since the Index is comprised of the AUDUSD, USDJPY, EURUSD and GBPUSD this event by watching the USDollar we can get a full interpretation of the events outcome.
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Ultimately, once CPI data has been released trader will look to see if price has broken out or bounced back below standing resistance. If price breaks above 10,300 it would be a strong signal to traders that the current bull trend on the USD is set to continue. A move back lower, would confirm a technical double top and indicate a fresh round of USD weakness. Regardless of the outcome, know this can help us better interpret market direction and place positions after this weekly event.
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