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Article Summary: The USD is in a state of transition for 2013. With CPI being released on Thursday, traders will await the announcement to determine market direction.

The Consumer Price Index, better known as the acronym CPI, is released on a monthly basis by most major economies to give a timely glimpse into current growth and inflation levels. Inflation tracked through CPI looks specifically at purchasing power and the rise of prices of goods and services in an economy which can be used to influence a nation’s monetary policy. The United States is set to release CPI data later this week, on Thursday February 21st at 13:30 GMT, as noted on the DailyFX economic calendar.

Below you will see a chart displaying the historic results of CPI (YoY) for the United States. This month, expectations are set at 1.7 % growth compared relatively to last year’s data. If CPI is released higher or lower than expectations this news event does have the ability to influence the market.One way we can interpret its affects is by monitoring the US Dollar Index.

Understanding the Consumer Price Index

Below you can see a chart of the US Dollar Index (DXY). If CPI is released away from expectations, it is reasonable to believe this may be the catalyst to drive the Index to fresh highs, or to rebound from resistance. Since the Index is comprised of the AUDUSD, USDJPY, EURUSD and GBPUSD this event by watching the USDollar we can get a full interpretation of the events outcome.

Learn Forex – DXY Index

Understanding the Consumer Price Index

Ultimately, once CPI data has been released, the trader will look to see if price has broken out or bounced back below standing resistance. If price breaks above resistance, it would be a strong signal to traders that the current bull trend on the USD is set to continue.

A move back lower would confirm a technical correction and indicate a fresh round of USD weakness. Regardless of the outcome, knowing this can help us better interpret market direction and place positions after this weekly event.

Next: How to Use PPI in Forex Trading (19 of 63)

Previous: Trading Forex Using GDP

To contact Walker, email wengland@dailyfx.com. Follow me on Twitter at @WEnglandFX.

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