ANALYSIS PRIOR TO THE AUSTRALIA CPI
On 23rd October (Monday), we held our free weekly Alpha Play Weekly Traders Meetup, during which we shared our analysis and insights on upcoming news events to watch out for the week ahead.
One of the key events that we focus on last week was the Australia Consumer Price Index (CPI). This economic data measures the change in the price of goods and services purchased by consumers. Although this economic data is released on a quarterly basis, and is relatively late to the inflation data from other countries, it’s the primary gauge of consumer prices in Australia.
In most countries, consumer prices account for a majority of the overall inflation; and inflation is important to the Aussie Dollar (AUD) valuation. This is because rising prices generally lead to the central banks – the Reserve Bank of Australia (RBA) to raise interest rates out of respect for their inflation containment mandate. This in turn has a positive impact on the Aussie Dollar. This opposite stands true for a drop in inflation.
If the CPI data released is significantly better than the expected numbers, it will indicate an improvement in the economy, which usually cause the strengthening of the Aussie Dollar. On the other hand, if the data released is significantly worse than the expected numbers, it will indicate that the economy is slowing down, which usually translate to the Aussie Dollar weakening.
Based on our analysis on the Australia Dollar against the Japanese Yen (AUD/JPY), we were expecting more downside potential trading out of the CPI risk event.
*To protect our traders’ interest, not all pairs and details will be discussed in this post.
AUD/JPY PRICE MOVEMENT POST CPI
On 25th October (Wednesday), the actual CPI data was released at 0.6% versus the estimated forecast of 0.8%; with the Trimmed Mean CPI coming in at 0.4% versus the estimated 0.5%.
What this means is that there was a slower growth in the price of goods and services purchased by consumers than expected. This usually causes the price of the Aussie Dollar to weaken.
Following this major risk event on AUD CPI, we managed to profit +125 pips on the AUD/JPY trade, or $1,250 profit if traded a standard lot.
What made us really excited is that our students and attendees were able to profit from this trade too!
As coaches nothing make us happier than our students’ success
THIS WEEK'S FOCUS
- Bank of Japan (BOJ) Outlook Report on Tuesday
- New Zealand Employment Change on Wednessday
- Bank of England (BOE) Monetary Policy on Thursday
- US Non-farm Payroll on Friday
One of the potential currency pair and setup that we are keeping a close watch this week will be the Great Britain Pound against Japanese Yen (GBP/JPY).