The Consumer Price Index (CPI) is one of the most commonly used measures of inflation (inflation) and deflation. Since deflation does not occur often, CPI is also generally referred to as inflation data. Published monthly, the data is one of the most important economic reports for market participants. All financial products, such as stocks, bonds, cryptocurrencies, foreign exchange, gold, etc., will be greatly affected by CPI. The easiest way to determine whether inflation is showing signs of easing or worsening is to compare current values with forecasts. If the current value is higher than the forecast value, it means that inflation is worse than expected; and vice versa. As a result, market volatility usually follows the release of CPI data. Among the CPI data of all countries in the world, the United States has the greatest influence.
On September 13, the U.S. Bureau of Labor Statistics announced that the U.S. CPI in August rose 8.3% year-on-year and 0.1% month-on-month. The increase was higher than the 8.1% economists expected, and poor inflation data tends to drag down financial markets, and this time was no exception. All three major U.S. stock indexes plummeted and posted their worst one-day performance in two years. The pessimism also quickly spread to the cryptocurrency market, with Bitcoin ending the day down 9.9%.
Some people are happy and some are worried. For traders and speculators, whether it is rising or falling, high volatility markets are nothing but good things. Their trading strategy can be as simple as this: that is, if the CPI data is worse than expected, they will be short; if it is better than expected, they will be long. Let's verify that this simple strategy works.
A total of 9 sets of CPI data have been released so far this year: 1 was better than expected, 2 were in line with expectations, and 6 were below expectations. If 2 of the expected data are removed, we have a total of 7 samples to prove the above trading ideas. The only better-than-expected CPI data in 2022 occurred in August. Bitcoin rose by 4.6% in the first hour after the report was released, and the increase expanded to 6.7% 24 hours later.
As for the other 6 times of bad inflation data, in the first hour after the report was released, Bitcoin recorded 5 (83%) trading losses, and 3 (60%) of the losses were further expanded after 24 hours. If you only look at the 24-hour transaction records after the release of the data, the price of Bitcoin has never been higher than its opening price, which means that the bad CPI will definitely make Bitcoin fall.
Although just looking at the data proves that the above-mentioned trading strategy is feasible, it is not easy to actually obtain first-hand CPI data. Not only that, but often when we see the actual data, the price of Bitcoin has already been quickly reflected. That being said, for seasoned traders, the CPI release date is an extra monthly payday.
Disclaimer: The information and figures provided in this article do not constitute any financial advice. Trading cryptocurrencies has various risks and may not be suitable for all investors. Please do your due research and contact your financial advisor before making any investment decisions and always ensure you understand the risks above.
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