The US dollar is heading to close the seventh day in the red as it remains under selling pressure. The US data at 15:30 GMT+3 (jobless claims and Philly Fed Manufacturing Index) may support the greenback if it's strong.
Key Forex Event: US Inflation Rate
What will happen?
The US Inflation Rate (CPI) will be announced on Wednesday, October 13, at 15:30 MT (GMT+3). The inflation rate measures the month-over-month change in the price of goods and services. Traders eagerly await this event as it will impact the USD and thus the vast majority of currency pairs in the Forex market.
Why is it important?
The Federal Reserve makes policy decisions based on the Inflation Rate data. Thus, not only the actual inflation data but even traders’ expectations for the CPI release increase volatility in the Forex market. Last time, inflation was 0.3%, which was worse than expected. As a result, USD/JPY dropped sharply.
How to trade on US inflation?
It depends on whether the actual Inflation Rate exceeds the market forecast or not. The forecast will appear a few days before the release in the economic calendar. The better-than-expected inflation rate would force the Fed to raise rates. As a result, the USD will surge. Here’s the rule below, but remember that every rule has exceptions sometimes!
- If the US inflation rate is greater than the forecasts, the USD will rise.
- Otherwise – drop.
Instruments to trade: EUR/USD, USD/JPY, all other majors, and also gold (XAU/USD)
The United States will release the weekly Unemployment Claims on October 21, at 15:30 MT time (GMT+3).
The Fed is ready to start tapering in November. Since the markets were expecting this and it wasn’t a surprise, the USD slumped allowing risk-on currencies and gold to rally up.
S&P 500 and Nasdaq are still near all-time highs, supported by robust corporate earnings. Gold keeps moving inside the ascending channel.
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