The Event:
At 8:30 AM EST on Wednesday, March 17th the Department of Labor releases its Producer Price Index (PPI) figures.
Description:
PPI measures the changes in prices of finished goods and services sold by producers. It is a monthly release, generally announced around 15 days after the end of each month. The PPI is considered to be a leading indicator of inflation, hence its importance to Forex traders. The reasoning behind this idea is that when producers begin to charge more for items, these costs are passed along to the final consumer wherein climbing prices can result in inflation. Inflation is one of the major metrics looked at by the Federal Reserve when making interest rate and other economic decisions to smooth the economy. If the PPI beats estimates, it’s considered bullish for the U.S. dollar, missing is considered bearish.
Trader Take:
The PPI figure was greater than forecast last release. This time it is projected to be -0.2%. This is down substantially from the last release of 1.4%. Presently, the EUR/USD pair is hitting resistance at the 1.3770 area as the USD is gaining strength prior to the U.S. rate announcement. The PPI may easily beat the conservative estimate but be ready for anything!
David Goodboy is Vice President of Business Development for a New York City based multi-strategy fund.