At today’s meeting, theBank of Japan changed the balance of risks for inflation in the forecasttowards neutral, however, it barely raised its inflation forecast, which willlikely be regarded as a lack of urgency to raise the rate. In the case of moresignals from the Fed related to policy tightening, the yen is the first tosuccumb to a strong dollar. A strong report on the UK labor market raised thechances that the February meeting of the Bank of England will be held under thebanner of policy normalization. Dull economic calendar and sense of anxiety in stockmarkets is expected to allow the dollar to test the key nearby resistance level- 95.5 on DXY.The data worth payingattention today relates to the US economy – this is the industrial Empire index,data on purchases and sales of Treasuries by foreign investors (the so-calledTIC Flows), as well as data on home sales. However, their impact on assetprices is likely to be limited. Market participants are beginning to gear upfor next week’s FOMC meeting, which was mainly reflected in completed pullbackand bullish breakout in 10-year yield of the January high of 1.80%, after whichthe sell-off accelerated, propping up USD demand:The ZEW report on theGerman economy showed that Omicron’s influence on the economy stabilized inJanuary – the sentiment index exceeded the forecast and amounted to 51.7points. This fact made little impression on the euro, as now the movement inthe pair is formed by expectations related to the dollar and the upcoming Fedmeeting. However, the prerequisites for a hawkish shift in the ECB’s policy areslowly building up as prospects for persistently high inflation in comingmonths or moving to even higher levels appear to be solid.Markets shrugged off astrong UK labor market report as GBPUSD plunged below 1.36 on the back of broad-baseddollar strength. However, tomorrow’s inflation report may support the Britishcurrency and a convenient level for an upward correction is the level of 1.355,where the upper limit of the previous downward channel resides:However, closer to the FOMC, thedownward movement is likely to resume and the level of 1.3550 can serve as aselling point. In turn, for EURGBP, downward movement is also a priority, inparticular, it is worth considering the idea of a breakthrough of the levelof 0.83 and sell-off toward 0.8250.
Source: Tickmill
