On Monday, the activity of foreign exchange market was shown in the Asian trading session only. In Europe, it started to decline gradually because of the US holiday which is the day of Martin Luther King. It further influenced the mood of investors due to lack of American players in the markets.
The three-day weakening of the US dollar was suspended on Tuesday. The dollar has weakened noticeably since the beginning of this year amid lack of new drivers for growth. On the other hand, it was indicated earlier that the expectation does not only mean the world's largest central banks, such as the Central Bank of Japan, the Bank of England, and the ECB, can change their views on the current monetary policy courses.
But based on opinions, its local weakening could possibly end this week in relation to the euro and the British currency. If the German consumer inflation data will be published today and tomorrow, then the euro area and the UK will not show any strengthening. This may be the basis for a corrective decline in the euro and sterling in relation to the US currency, although generally we still hold the view that r the dollar may remain under pressure in the first quarter of this year.
Today, the market will focus on the publication of consumer inflation data in the UK and Germany. It is assumed that the consumer price index (CPI) in Germany will remain at the same level both in monthly and annual values, correspondingly adding 0.6% and 1.7%. If the data does not show a strengthening of growth, this could be the basis for the corrective movement of the euro downwards, which may intensify tomorrow on Wednesday against the backdrop of the similar unimpressive dynamics already given by this indicator from the eurozone.
At the same time, the consumer price index (CPI) in the UK will also be released. It is expected that the figure in annual terms will be corrected to 3.0% vs. 3.1%, and its monthly December value will show an increase of 0.4% against the November growth of 0.3%. With this, the situation can develop in the same way as in the case of the euro. Weaker indicator data will put pressure on the sterling and lead to its local correction.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.2245. If it falls below this mark, there is a probability of a local price drop to 1.2200, although the pair's growth potential remains active.
The GBP/USD pair is trading above the level of 1.3775. If inflation data in Britain are disappointing, this could lead to a correction decrease to 1.3730 or even 1.3700 after overcoming the price tag of 1.3775.
* The presented market analysis is informative and does not constitute a guide to the transaction.