DISCLAIMER: The information produced by aQuant is of a general nature only. It is not personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
It is a week with low volatility (so far) in the currencies markets. Most likely, the traders and the investors are tentative in front of tomorrow’s US inflation announcement. The expectations are for 7.3% inflation in January which is higher than the 7% in December. The Fed has already tightened the monetary policy as the Quantitative Easing is going to stop next month and also it is possible to shrink the balance sheet. Also, there’s a big probability for hiking the US interest rates at March’s session.
The USD Index is practically unchanged and so do most of the major currency pairs.
In Europe, Christine Lagarde has introduced a hawkish profile. The Pandemic Emergency Purchase Program will also end in March but now there’s a good chance to see interest rates hike in the eurozone in 2022, something that was out of the question before.
The bond yields keep on rising on the echo of the interest rates hike and the high inflation. The US 10-year bond yield is currently at 1.93%, about 1.15% higher this week.
EURUSD (current price 1.1438) is in a mild corrective mood this week, after the big rise that it performed during the last week. The US inflation announcement may cause chain reactions if the rate is too high and this is something that is taken under consideration by many traders. No other important announcements so far in this week, so the volatility of the pair is low but it may change tomorrow with US CPI news. There’s a strong resistance close to 1.1485 which seems to be critical for the pair’s future uptrend. In case of USD’s strengthening, the EURUSD may return to 1.1380 in the first place and maybe to 1.12 later.
GBPUSD (current price 1.35883) is bullish this week. The UK economic calendar was poor so far and only the Like-for-Like retail sales recovered impressively by 8.1%. The pair is helped mostly by the weakness of the USD today and by the recent interest rate hike by the Bank of England. The most important day in the UK this week, regarding economic results, is on Friday: GDP, industrial production, manufacturing production, and total trade balance are announced. The target of the 1.3750 remains for many buyers but first, the last week’s high at 1.3628 must “fall”.
USDJPY (current price 115.46) is slightly bullish this week, with low volatility. The Fed became more hawkish lately but the Bank of Japan seems to preserve the loose monetary policy and the low interest rates since the inflation in Japan is still relatively low. The Japanese economic calendar is poor this week so the US inflation announcement is expected to dominate on the pair. The mildly higher bond yields give extra points to the bullish scenario. The price area of 116.35 is a super strong resistance as it is the highest price of the last 5 years and some bearish reactions may occur.

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