How the CPI Economic Indicator Impacts Forex Trading

[abdulla1]

The Consumer Price Index (CPI) has a major influence on forex trading. As an important economic indicator, CPI impacts not only forex, but also interest rates and stock and bond prices. The CPI is also used to make adjustments to cash flow mechanisms, such as pensions, health insurance and income. As a result, most traders and investors will find that the CPI affects their strategies in some way or the other. The CPI compares a household's cost of a specific basket of goods and services with the cost of the same basket during an earlier period.

 

Economic Indicator: How Does CPI Influence Forex Trade?

 

The CPI is an important benchmark for inflation in any economy. Traders must have their eyes fixed on the CPI. Once investors start feeling the heat of inflation, they are bound to change their investing strategies and look for alternate avenues to invest their capital. An investor who receives about 20% on his/her dividends on an investment stands to lose the value of the investment when the inflationary adjustment on the currency is 20% or more.

 

Governments also keep a close eye on the CPI. There are several measures that a Central Bank or the Federal Reserve can take to ensure that CPI remains within acceptable levels. The CPI is also used to adjust payment disbursements to Social Security beneficiaries, military and federal service retirees. The CPI is also a guideline in adjusting the income tax structure to prevent inflation-induced increases in taxes. All these actions have a very direct impact on the forex market.

 

In China, for example, due to the economic boom in recent years, people are making more money than before. As a result, the purchasing power increased, and prices were raised to counter the difference. Such a cycle of increase in wage and purchasing ability is bound to send inflation through the roof. A CPI report can highlight this trend and encourage the government to take remedial steps.

 

The CPI can also sometimes be affected by a hike in price of a particular commodity. For example, a surge in oil prices can affect transportation, food, utilities and retail sales and, as a result, stretches the budgets of the working class. In this case, a major increase in the price of one commodity can trigger a domino affect, which would affect the strategies of investors and traders in the forex market.

[shoaybkhan]

This is something i was looking for, thankyou.

[surya77]

consumer price index may is become important fundamental indicator, with this we can know  A fundamental indicator which measures the prices of goods and services charged to consumers.

[myregister]

As far as i know CPI will give us indicator of how healthy the consumer there in one country, if that is rising means that inflation will rise too, this could be good as long as GDP before is good. CPI also indicated that country's economic to some point is good or not, so it wll affect foreign exchange fully.

[pepy]

CPI is quite effective for many traders because in fact CPI provides information about price changes in the nation's economy to government, business, labor, and other private citizens. With this we can predict what will those politician will do to thei foreign policy and that affect USD for sure.

[myregister]

Its impact is big especially for a country like United State. CPI is indicator of how healthy one economy's as long as that is not too high, if it is rising means that in short to mid term one's economy will be good and vice versa if the result is falling further.

[pepy]

Yes, i think it is not only United States of America, but also for all countries. Imagine NFP become is rising steadily and in good manner? That would change the world for whole. I see that major countries such as China, United States, United Kingdom, and European Union's CPI would have big impact for most currencies.

[myregister]

Well for sure CPI will change the market price it's not just USA but also from the other countries. CPI is inflation rate and as i said before in few of my posts that inflation will bring impact because inflation will the market to adjust the price and after the price affected then people will be affected in that country

[pepy]

At least i have around 3-4 indicators to choose if i must trade with that pair or not. CPI included inside because people will mostly look at it even that is NZD CPI the result would be so good to follow, It would bring impact for the price and in long term it would be around 100-200 pips movement.

[myregister]

CPI for sure impacted the news trading, first of all that is because it is the indicator of how healthy is the economy of one country. It is inflation checker so if inflation is down a bit or rise a bit people can estimate how healthy is that country and take a decision to sell or buy which increase or decrese the price of one currency.

[pepy]

But not all CPI can affect one currency so big like USD or GBP. Big countries CPI for sure but small countries or a  country that has less impact to the international financial worlds will be nothing or less. However, some people said CPI isn't really accurate but for many decades it has been using as indicator for inflation.

[myregister]

Yes, in global terms i will list it to this; USD CPI, EUR CPI, GBP CPI, and then the rest others major pairs CPI. As for USD this is special because we use mostly USD and that is why CPI of United States become the most important part of this level compared to the others, also as i said before CPI will become indicator of the healthy economy since it is an indicator of goods price in one country.

[pepy]

Of course do you think i don't know about this? We are talking about CPI from those countries which the currency affected global economy. CPI for sure as indicator of the price will give a good impression of investors to buy or if they see CPI of one country is bad they can simply sell and press the currency price of one country to another whole level.

[myregister]

CPI surely affect the way investor or speculator see the market's movement, this is crucial indicator for fundamental based trader like me. But not all country's CPI is reliable to see sometimes the reliable one also give the wrong impression and the market act strange. CPI means inflation and if inflation controllable then it means there is growth, so many economist see the rising CPI in controllable manner means growth.

[pepy]

Inflation means that economy is growing as long as gdp growth is overcome that inflation and inflation to one country to the other country is different, in developed countries CPI should be quite low not so high like 5% or higher, but for developing countries it is higher, around 4-6%, in developed CPI usually around 1%-3%.

[myregister]

CPI means that there is a consumer who spend their money to buy something for pleasure or for living and thus drive the price and like that. Just like its name CPI = Consumer Price Index. If that is rising means more consumption especially mostly by middle class people. If there is transaction the economy is increasing its value.

[pepy]

Yes, you are right, middle class is what consume mostly of their income around 70-80% while the rest for saving if i don't make any mistake. But CPI is the indicator it has some flaws and some people criticize for what it lacks. Overall, CPI is enough and has been used for more than 20 years to see how the consumerism happening in one country.

[myregister]

Some flaws surely exist for CPI just like how government calculated that CPI, some economist criticize this thing by said that CPI sometimes overestimation of the inflation thus make the wrong impression. But over this criticism i must admit that impact of CPI is big and CPI also become the influential indicators for FX traders for more than decades.

[Vaabum]

It is important to understand the essence of the indicator. I think that every trader should understand that the indicator allows the trader to get information, and does not work instead of the trader.