Forex Signals Brief January 31: Eyes on Eurozone Inflation and BOE Meeting

Yesterday was filled with events, starting with inflation numbers from Australia, which showed that the slowing trend is accelerating as both the headline and core inflation figures for December missed expectations. Headline CPI YoY fell to 3.4% from 4.3% previously, missing expectations of 3.7%, while CPI QoQ was slashed in half at 0.6% in Q4, from 1.2% in Q3.

The Chinese manufacturing PMI was little changed, remaining in contraction for the third month, which was a drag on Oil. In Europe, the German and French inflation also slowed faster than expected in December, which adds to the negative buildup for the Euro.

Then the US session started which unfolded in several chapters of the tale. First came the GDP report from Canada, which showed a bigger-than-expected increase in November at 0.2%, while the advance reading for December was even higher. That sent the CAD 70 pips higher, but then USD/CAD reversed after the weaker US data.

ADP employment missed expectations while the pay increase in the Employment Cost Index was slower. In the evening, the FED held interest rates unchanged at 5.50% and the statement leaned on the hawkish side, with a sentence added stating that they will not soften until they are more confident in inflation.

But then the press conference came and that approach was overturned when Powell stated that weaker economic data is not necessary for the FED to start cutting rates. However, he added that they are unlikely to have enough confidence in inflation to reduce rates in March, which sent the USD higher in the end.

Today’s Market Expectations

Today the main event in the first half of the day is the Eurozone inflation report for January. The headline CPI YoY is expected to tick down to 2.8%, from 2.9% in December, while the Core YoY is expected to lose two points, falling to 3.2% from 3.4% before. If the numbers continue to come in weak, the ECB will struggle to sustain its patience and will likely cut rates sooner than expected.

The Bank of England is anticipated to retain interest rates at 5.25%. The data from the UK has been mixed, with some further softening in the labor market and wage growth, but a surprise hot CPI report. Furthermore, retail sales fell sharply in December, while services and manufacturing PMIs increased in January, getting out of contraction. The BOE will most likely retain its patient stance, indicating that interest rates will remain high for long enough to return to the 2% objective, which would be bullish for the GBP.

In the US session, we have the Unemployment Claims, with Initial Claims continuing to linger around cycle lows, while Continuing Claims, after hitting a new cycle high, have begun to decline. This week the Initial Claims are expected to be little changed at 213K, down from 214K the previous week, but there is no consensus for Continuing Claims, however, the previous report showed an increase to 1833K from 1806K.

BTC/USD – Daily Chart 

Ethereum Reversing Back Down

ETHEREUM has also been negative, sliding from above $2,700 following the debut of BTC ETFs, although the general trend remains favorable because it has not yet reached lower lows. The price fell below the 20 daily SMA (gray) yesterday, but it remains above the 50 SMA (yellow), which serves as the final support indicator during deeper pullbacks like this one. We are attempting to build another long-term buy ETH signal near the 50 SMA, but we will see how the price movement unfolds.

Ethereum – Daily Chart

• ETH Buy Signal
• Entry Price: $2,290
• Stop Loss: $2,590
• Take Profit: $1,750