Volatility Equals Opportunity. Here Are 5 Ways To Trade U.S. Consumer Price Index (CPI)

Updated: 1 day ago

Developments around labor, inflation and the broader US economy are some of the key data points which the U.S Federal Reserve considers in it's decision to either hold, cut or raise interest rates.

For example, a buoyant labor market is associate with a strong economy, which has the ability to place upward pressure on inflation and in turn, requires higher interest rates. This economic scenario is a positive for those looking for a higher US Dollar which will benefit from higher interest rates and possibly higher interest rate differentials.

Conversely, a weak labor market is associate with a slowing economy, which has the ability to place downward pressure on inflation and in turn, leaves room for the lower interest rates. This economic scenario is a positive for those looking for a lower US Dollar which becomes a casualty of lower interest rates and possibly lower interest rate differentials. For example, versus the European Union.

This week, the most anticipated data point is U.S. Consumer Price Index (CPI), which will be released at 3:30pm on Wednesday 15 January. The reaction to the release creates volatility around selected instruments, however this also creates opportunities to trade and potentially derive at a profit.

The consensus is for the Core CPI to rise by 0.2% for the month of December while the consensus is for year-on-year inflation to increase by 3.3%. A print below consensus is likely to place selling pressure on the USD while print well above this figure could support continued buying activity in the USD.

Among others, here are five instruments by which traders can participant in and potentially profit from as the market positions and reacts to the release.

Shown below are the daily charts, with potential direction should the payrolls come in line, miss or exceeded consensus expectations.

1. FX: EUR/USD