A1 Trading Company

CPI (Inflation)

Consumer Price Index (CPI) and Core CPI are primary measures of inflation central banks use to make monetary policy decisions. Rising or falling Inflation impacts some assets differently than others. The EdgeFinder is calibrated to reflect how traditional economic theory would suggest an asset may be impacted by the latest figures.

Consumer Price Index (CPI) is the metric we use to measure the rising or falling inflation for each major economy. The EdgeFinder imports and compares the latest data relative to forecasts & previous data in order to generate its scoring.
Change:
Recent change in CPI will affect score in a certain type of way depending on the asset. For instance, a rise in CPI would be a bearish indicator for the indices because it might influence the Fed to raise interest rates. However, seeing this same sort of news would be bullish for the dollar, since higher interest rates usually lead to a stronger USD.
Location:
Not only does the change in inflation matter, but also what the nominal inflation rate is currently. For example, CPI readings being above 3% is traditionally considered a high inflation environment, while CPI readings being below 2% are considered low inflation environments. This "environment" or location is also considered in our scoring.
Filter based on assets, categories, or bias!

How is inflation Calculated on the EdgeFinder?

Inflation Score Calculation For Currency Pairs

For currency pairs, we consider the latest reported CPI reading relative to what analyst forecasts were prior to the reported figure.

Because a currency pair involves two unique economies, the software analyzes each currency individually, and computes a total score for the pairing.

For example, for EURUSD, we consider both the Euro, and the US dollar when scoring this pair's inflation reading.

For the equation below, currency A would refer to 'EUR', while currency B would refer to 'USD'.

Calculation:
If currency A's latest CPI is HIGHER than forecasted, +1
If currency A's latest CPI is LOWER than forecasted, -1
If currency A's latest CPI is EQUAL to forecasts, +0

We repeat for currency B, but invert the impact on the currency pair
If currency B's latest CPI is HIGHER than forecasted, -1
If currency B's latest CPI is LOWER than forecasted, +1
If currency B's latest CPI is EQUAL to forecasts, +0

Inflation Calculation For Gold

For gold, the EdgeFinder will consider both the location and latest change to CPI when computing a final score for inflation. However, unlike currency pairs - in the computation for gold, we also consider CORE CPI for our latest change, as illustrated in the image and calculation below.

Component 1: (Change)
If latest US CPI is HIGHER than forecasted, -1
If latest US CPI is LOWER than forecasted, +1
If latest US CPI is EQUAL to forecasts, +0

If latest US Core CPI is HIGHER than forecasted, -1
If latest US Core CPI is LOWER than forecasted, -1
If latest US Core CPI is EQUAL to forecasts, +0

Component 2: (Location)
If latest US CPI < 1%, +1
If 1% <= latest US CPI >3%, 0
If latest US CPI > 3%, +1

The final score is the summation of both component 1 and component 2.

Note, the EdgeFinder considers a high inflation environment to be bullish for gold as a baseline. However, if inflation is ticking up in the most recent data alongside strong economic output data, it could suggest that the US central bank may act to take a restrictive monetary policy stance. Strong economic data accompanied with elevated inflation can be bullish for the dollar, and headwind to gold. Specific to the inflation calculation, the EdgeFinder assumes gold to be most bullish when inflation is hot but cooling, or during severe recessionary periods. The EdgeFinder considers gold to be most bearish when inflation is under control.

Calculation For Indices & BTCUSD

For indices & BTC, the EdgeFinder will consider both the location and latest change to CPI when computing a final score for inflation. Similar to gold, we also consider CORE CPI for our latest change, as illustrated in the image and calculation below.

Component 1: (Change)
If latest CPI is HIGHER than forecasted, -1
If latest CPI is LOWER than forecasted, +1
If latest CPI is EQUAL to forecasts, +0

(US indices only)
If latest US Core CPI is HIGHER than forecasted, -1
If latest US Core CPI is LOWER than forecasted, +1
If latest US Core CPI is EQUAL to forecasts, +0

Component 2: (Location)
If latest CPI <= 3%, +1
If latest CPI > 3%, -1

The final score is the summation of both component 1 and component 2.

Note, the EdgeFinder typically views inflation to be the least threatening to these risk on assets when it is tamed and under control. Whenever inflation becomes too high or too low, it is considered by the EdgeFinder to be a potential bearish catalyst. If inflation is too high, monetary policy could become more restrictive and harmful to businesses. On the other end of things, if inflation enters a dangerously low level, it suggests that the economy is quite weak and could hurt corporate earnings and risk sentiment.

Calculation For Commodities (US Oil, Silver, Copper, Platinum)

For commodities, the EdgeFinder will consider both the location and latest change to CPI when computing a final score for inflation. However, unlike currency pairs - in the computation for gold, we also consider CORE CPI for our latest change, as illustrated in the image and calculation below.

Component 1: (Change)
If latest CPI is HIGHER than forecasted, -1
If latest CPI is LOWER than forecasted, +1
If latest CPI is EQUAL to forecasts, +0

Component 2: (Location)
If latest US CPI < 1%, -1
If latest US CPI >= 1%, +1

The EdgeFinder assumes that higher inflation is considered a more bullish environment for commodities. This is because higher inflation means rising prices, and is often accompanied with higher demand for raw materials due to strong economic output. If however economic output data is found to be weak, that will be accounted for in the EdgeFinder's total score, and may act to counterbalance this inflation reading.
Frequently Asked Questions (FAQs)
View more FAQs here.

What time frames can you use the edgeFinder on?

The EdgeFinder gives directional bias and is not time based. Therefore, there is not a specific time frame that is best for the EdgeFinder.

What assets are included on the EdgeFinder?

Forex Majors:
AUDUSD, NZDUSD, USDZAR, GBPUSD, USDJPY, USDCAD, USDCHF, EURUSD

Forex Minors:
AUDCAD, AUDCHF, AUDJPY, AUDNZD, CADCHF, CADJPY, CHFJPY, EURAUD, EURCAD, EURCHF, EURGBP, EURJPY, EURNZD, GBPAUD, GBPCAD, GBPCHF, GBPJPY, GBPNZD, NZDCAD, NZDCHF, NZDJPY

Metals:
XAUUSD, PLATINUM, SILVER, COPPER

Energy:
USOIL

Indices:
GER30, US30, SPX500, US10Y, NAS100, JP225, UK100, RUSSELL

Bonds:
US10Y

Is the EdgeFinder realtime?

While the EdgeFinder is not necessarily realtime, it is fully automatic in its data collection. The EdgeFinder uses a variety of data sources and inputs. Most price data updates are on a 15 minute timer, while economic data updates every few hours. COT data updates weekly (as it only releases 1 time per week), and retail sentiment updates every 30 minutes.

Video Tutorials

How to Trade CPI Data like a PRO: Inflation EXPLAINED!
Welcome To The A1 EdgeFinder Pro
Home
Edgefinder
Signals
There is a significant degree of risk involved in trading securities. With respect to foreign exchange trading, there is considerable risk exposure, including but not limited to, leverage, creditworthiness, limited regulatory protection and market volatility that may substantially affect the price, or liquidity of a currency or currency pair. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you can afford to take the high risk of losing your money.
homesmartphonelaptop-phonemenucross-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram