On Wednesday, 19th of December at 09:30 am GMT CPI y/y index value will be published, which may have significant impact on trend and volatility of Great Britain Pound (GBP) and related currency pairs – main (GBPUSD) and crosses (EURGBP, for example). Publication of the index is considered as a high impact event on Forex market as it’s value indicates UK inflation and is used as the central bank’s inflation target. Consumer prices indicate the overall inflation value, which in turn influences significantly on national currency rate. Increasing inflation may lead to central bank rising interest rate to fight with the high inflation level.
The categories that are used to calculate UK's CPI are: Transport - 16%, Recreation and Culture - 15%, Housing, Water, Electricity, Gas and Other Fuels - 13%, Restaurants and Hotels - 12%, Food and Non-alcoholic Beverages - 10%. The index also includes Miscellaneous Goods and Services - 9%, Clothing and Footwear - 7%, Furniture, Household Equipment and Maintenance - 6%, Alcoholic Beverages and Tobacco, Health, Communication and Education - 11%. Increase of the CPI value is considered as good event for currency.
Since currency rates have already accounted for the current value of the index, we consider that the change of the index is more interesting and useful than its absolute value. Thus, we provide a couple of statistical insights related to CPI change in the past.
Below is the distribution of the absolute forecast error. In other words, the graph shows how many times the actual result was better/worse than the related forecasted value.
It is also interesting to check how large was the change in price depending on the forecast error. Below you can check 4 graphs that represent the change of the GBPUSD rate at the close of the 1st 1-minute, 5-minute, 30-minute and 1-hour bar after the news release.
For some breakout strategies it can be useful to check maximum price level (high) that GBPUSD has reached during 1st 1-minute, 5-minute, 30-minute and 1-hour bar after the news release.
And minimum price level (low) as well.
News based trading may be very profitable if you have enough data to evaluate your model properly and if know what to expect. Should you be interested in developing a News Indicator or a Trading Bot for your preferred trading platform – please, feel free to contact us.