Weekly Risk Events 12 January 2015

This week we have several key news events being released and one event in particular that could give us a high probability trading opportunity.

The risk event I will be focusing on this week is the UK CPI reading on Tuesday 13 January 2014.

UK CPI has been falling over the past few months and UK data has been mixed along with speculation that the Bank of England may not hike rates in 2015 after all.

While this speculation may be an overreaction there is certainly scope for the GBP to weaken further against the USD, based on these other factors.

This weeks trade will be based on the fact that UK CPI is expected to tick lower to 0.7% down from 1.0% previously. This is obviously bad news for any hawks in the bank of England because it means that the chances of a rate hike soon are diminished.

We still expect the bank to conduct a hike, simply because the longer they leave rates low the more chance there is of inflation picking up and rising too quickly to be controlled with gradual rate rises.

The Bank will want to avoid this scenario at all costs.

The second part to the trade of the week is last weeks fantastic NFP figures from the US. The headline figure was higher and the previous was also revised up. There was some concern about average earnings falling into negative territory but overall nothing that will change the course of the Fed for now.

So we have a situation where we enter the week off the back of USD positive news and coming into a negative scenario for the GBP (With CPI edging lower).

This sets up a perfect trading opportunity on GBPUSD, for a sell over the first half of the week.

We can sell into CPI which means positioning ourselves before the event so that we can take advantage of any spikes that may occur when it is released. Or if you are a more conservative trader you can simply wait until CPI is confirmed at 0.7% or lower to enter your trade (At a slightly worse price)

Ofcourse we will be protecting ourselves with a stop loss on this trade due to the volatility that we have seen in GBPUSD over recent weeks, but there is a very high probability of the pair falling lower at least over the first half of the week.

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