- U.K. Consumer Price Index(CPI)to Narrow to 2.5%- Lowest Since April

- Core Inflation to Slow for First Time Since July

Trading the News: U.K. Consumer Price Index

The headline reading for U.K. inflation is expected to narrow to an annualized 2.5% in October, and a marked slowdown may spur a more meaningful correction in the British Pound as it limits the Bank of England’s (BoE) scope to implement its exit strategy ahead of schedule.

What’s Expected:

Time of release: 11/12/2013 9:30 GMT, 4:30 EST

Primary Pair Impact: GBPUSD

Expected: 2.5%

Previous: 2.7%

DailyFX Forecast: 2.7% to 2.9%

Why Is This Event Important:

The recent trend of better-than-expected data may continue to prompt sticky price growth in the U.K., and we may see the BoE switch gears in 2014 as the central bank continues to see above-target inflation over the policy horizon.

Expectations: Bearish Argument/Scenario

The stronger recovery may heighten price pressures in the U.K. as the BoE retains its highly accommodative policy stance, and the threat of an asset-bubble may push the central bank to move away from its easing cycle as the economy gets on a more sustainable path.

Risk: Bullish Argument/Scenario

However, easing input costs along with the appreciation in the British Pound may continue to limit the upside for inflation, and a marked slowdown in the CPI may trigger a more meaningful correction in the GBPUSD as it provides the BoE with more room to retain its highly accommodative policy stance.

How To Trade This Event Risk(Video)

Bearish GBP Trade: U.K. CPI Narrows to 2.5% or Lower

• Need red, five-minute candle following the print to consider a short British Pound trade

• If reaction favors a sell trade, short GBPUSD with two separate position

• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward

• Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish GBP Trade: Inflation Tops Market Expectations

• Need green, five-minute candle to favor a long GBPUSD trade

• Implement same setup as the bearish British Pound trade, just in the opposite direction

Potential Price Targets For The Release

GBPUSD Daily

Chart - Created Using FXCM Marketscope 2.0