News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site. See our updated Privacy Policy here.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Bullish
Wall Street
Bearish
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
USD/JPY
Mixed
More View more
Real Time News
  • Many people are attracted to forex trading due to the amount of leverage that brokers provide. Leverage allows traders to gain more exposure in financial markets than what they are required to pay for. Learn about FX leverage here: https://t.co/BdgFmkRxVw https://t.co/FqAsp91Gia
  • A currency carry trade involves borrowing a low-yielding currency in order to buy a higher yielding currency in an attempt to profit from the interest rate differential. Find out if the carry trade suits your trading style here: https://t.co/7t4BzmLg8w https://t.co/cKOUmtj7Dj
  • GDP (Gross Domestic Product) economic data is deemed highly significant in the forex market. GDP figures are used as an indicator by fundamentalists to gauge the overall health and potential growth of a country. Learn use GDP data to your advantage here: https://t.co/Yl9vM7kO6a https://t.co/TnL91f7sl7
  • Human error in the forex market is common and often leads to familiar trading mistakes. These trading mistakes crop up particularly with novice traders on a regular basis. Learn about the top ten trading mistakes and how you can avoid them here: https://t.co/i8E2AXtzF3 https://t.co/cDcjl3Ue09
  • Consolidation or bull flag? A bull flag is a continuation pattern that occurs as a brief pause in the trend following a strong price move higher. Learn how to better spot these formations here: https://t.co/yOEvLjKnct https://t.co/KWOX5wSipe
  • What is your forex trading style? Take the quiz and find out: https://t.co/YY3ePTpzSI https://t.co/cwSWCpKtaj
  • Japanese candlesticks are a popular charting technique used by many traders, and the shooting star candle is no exception. Learn about the shooting star candlestick and how to trade it here: https://t.co/mfwJ0sZLTs https://t.co/zu5hMovbz6
  • Knowing how to accurately value a stock enables traders to identify and take advantage of opportunities in the stock market. Find out the difference between a stock's market and intrinsic value, and the importance of the two here: https://t.co/QszmdZFxlk https://t.co/QMKyTBOKNG
  • Currency exchange rates are impacted by several factors. Are different world leaders a contributing factor? Find out here: https://t.co/4jsORznRTE https://t.co/aRkGoNvj6D
  • Do you know how to properly Identify a double top formation? Double tops can enhance technical analysis when trading both forex or stocks, making the pattern highly versatile in nature. Learn more about the double top formation here: https://t.co/t9Flsqcxo9 https://t.co/ltVTNO2sjT
LEARN FOREX: Chinese CPI Correlates with Aussie Dollar

LEARN FOREX: Chinese CPI Correlates with Aussie Dollar

Jeremy Wagner, CEWA-M, Head of Education

China releases their monthly inflation reading later tonight at 01:30 GMT. Chinese Consumer Price Index (CPI) readings are important to the value of the AUDUSD because of the strong trade relationship between the two countries. This article will outline some of those correlations and how to use the CPI reading to trade the AUDUSD.

Inflation and CPI are important fundamental releases for most economies. That is because most central banks look to control inflation through their target interest rate. Therefore, as inflation runs to high, central banks consider increasing the target interest rate. If inflation runs to low, central banks look to stimulate the economy by lower rates.

The China – Australia Connection

It is no surprise that China has grown into a global powerhouse within the past several years. There are several countries that have strong ties to the Chinese economy and Australia is one of them.

According to the Australian Department of Foreign Affairs and Trade, China is Australia’s primary export destination with 29% of exports arriving in China. This is a result of Australia’s natural resources which are being used by China to help fuel their growth.

Therefore, if the Chinese economy slows down, that will naturally affect the need and demand for Australia’s iron ore which is needed for China’s infrastructure growth. As a result, a reduction in the rate of growth regarding inflation could simultaneously reduce the inflation of the Australian economy.

Chinese_CPI_Correlates_with_Aussie_Dollar_body_Chart_3.png, LEARN FOREX: Chinese CPI Correlates with Aussie Dollar

Source: tradingeconomics.com

Notice in the chart above how the Chinese CPI reading (red line) leads the Australian CPI reading (black line). Both readings are pointed sharply to the downside with no relief in sight. Economists are expecting the CPI reading to hold steady at +1.9%.

As a result of the correlation above, you can see how the Chinese CPI reading has related to the Reserve Bank of Australia’s target rate.

Chinese_CPI_Correlates_with_Aussie_Dollar_body_Chart_2.png, LEARN FOREX: Chinese CPI Correlates with Aussie Dollar

Source: tradingeconomics.com

Earlier this week, the RBA announced they were going to hold rates steady in an effort to let previous rate cuts work their way through the economy. This is indicative of the lower inflationary environment that both China and Australia are operating within. The RBA made it clear in their statement following the rate announcement that they are expecting further weakeness, but are seeing if previous cuts will be enough to stimuluate.

“Further effects of actions already taken to ease monetary policy can be expected over time. The Board will continue to monitor those effects, together with information about the various other factors affecting the outlook for growth and inflation.”

http://www.rba.gov.au/media-releases/2012/mr-12-33.html

In response to the steady interest rate announcement earlier this week, the AUDUSD strengthened on the news. However, there are pressures in the market that show the AUDUSD is at risk of a correction.

Chinese_CPI_Correlates_with_Aussie_Dollar_body_Chart_1.png, LEARN FOREX: Chinese CPI Correlates with Aussie Dollar

Source: tradingeconomics.com

The above shows the Chinese CPI and the AUDUSD exchange rate overlayed on the same chart. As China’s economy strengthens (as we saw during the 2009-2011 rebound in CPI – red line), the AUDUSD exchange range moved higher as well (blue line).

However, as of late, these 2 lines are diverging as the China CPI continues to soften at 34 month lows while the AUDUSD exchange rate remains at elevated levels. Therefore, a surprise China CPI reading to the downside may create an environment where the AUDUSD ‘catches up’ and sells off.

Resistance stands at 1.0480 and 1.0620. Look for 1.0445-1.0480 to provide resistance in a weak CPI reading. Utilize strong money management techniques to manage the trades towards support.

Strong support exists on AUDUSD at .9700, 1.0000, and 1.0150

---Written by Jeremy Wagner, Head Trading Instructor, DailyFX Education

To contact Jeremy, email jwagner@dailyfx.com. Follow me on Twitter at @JWagnerFXTrader.

To be added to Jeremy’s e-mail distribution list, click HERE and enter in your email information.

Looking for a strategy to trade? Take our free Moving Averages training course and learn how to use this widely followed indicator in creating a trading strategy.

Register HERE to participate.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES