ECB to Meet Inflation Target is Matter of Credibility; BoE Carney's Speech in Focus

The only notable event yesterday was the speech from the ECB President Mario Draghi. The euro inched higher due to his comments, that it’s matter of credibility to meet the inflation target. The greenback was higher mostly against the commodity currencies as they suffered once more from the dropping oil price.

ECB Draghi: Credibility Hinges on Meeting Inflation 2% Target
The single currency rose against its G10 counterparts as the ECB President Mario Draghi appeared confident and knowledgeable of the country’s economic needs, in terms of stimulus measures. The central bank will continue to pursue its inflation 2% target because it’s matter of bank’s credibility to achieve it. He said that December’s measures to extend the stimulus program and cut the deposit rate were necessary as the low inflation would harm the household consumption.

The EUR/USD pair made it up to the 50‐SMA on the daily chart, reaching 1.0860 before reversing slightly lower to finish the Asian session below its highs. The coming days is going to be fairly packed with US data, particularly on Friday, however, the main focus will be on the outcome of Wednesday’s FOMC Meeting. Technically, the Euro pretty much stuck to the 1.0700 – 1.1000 range that we mentioned yesterday, however, we said that we expected the pair to reach the 1.0840. The bias at the moment is unclear, but with the pair stuck in the aforementioned range and with the FOMC meeting coming up I do not think that the dollar will gain momentum to the downside. Therefore, the next target for me today will be the 1.0900, which coincides with the 200‐SMA on the 4‐hour chart.

British Pound Ahead of Carney’s speech
The British pound was traded broadly lower the other major currencies in the absence of news to push prices either way. Today, the speech of the BoE Governor Mark Carney is likely to stoke some volatility in the GBP cross pairs.

The pound remained under pressure for the second day versus the greenback, and finished the day below the critical level of 1.4300. The technical indicators actually appear to have a bit more direction than those of the EUR/USD, and both the daily and the 4‐hour charts appear to indicate that further downside may lie ahead. The key level to understand that will be the 1.4190. If that turns true then the next possible target will be the 1.4125. Further down, we could then see a return to last Thursday’s low of 1.4080.

AUD/USD – Three Negative Daily Closes
The Australian dollar plunged for the three consecutive days against the U.S. dollar. Tonight, the country’s inflation report is coming out. The AUD/USD plunged below the 200‐SMA on the 1‐hour chart during the Asian session and is now approaching towards the critical level of 0.6900. Furthermore, this could turn more bearish if it manages to break and close below the strong technical level of 0.6900, as this can be translated as the end of the correction in the short‐term. Therefore, we remain bearish on this pair targeting the previous low of 0.6825.

USD/JPY – Technical Outlook
The dollar came under pressure against the Japanese yen and during the early European morning, it fell below the key support level of 118.00. This week sees the Bank of Japan policy meeting, where the bank is expected to keep interest rate unchanged at 0.1%. To the downside, the 117.50 will be the first hurdle for the sellers.

U.S. Indices Continue to Suffer Triple Digit Losses
The first trading day of the week, the U.S. shares plunged severely on the oil prices drop. Dow Jones Industrial Average suffered a triple digit loss of 208.30, or 1.29% points down. The S&P500 and the Nasdaq Composite slumped by 1.56% and 1.58% respectively.

The biggest drag of Dow was by far the Caterpillar (NYSE: CAT) that tumbled by 5.03%. The Caterpillar Company will release its earnings report regarding the last quarter of 2015, on Thursday, 28th of January.

The S&P500 was down by energy sector that depreciated by 4.66% on the oil prices drop, and the material sector that was down by 3.20%.

Economic Indicators
On Tuesday, the only notable macro updates are the BoE Governor speech and some figures coming out from U.S, however, none of the U.S fundamental updates are game changers for monetary policy. In the morning, the BoE Governor Mark Carney will speak at the treasury select committee hearing while the financial stability report will be out.

In U.S., the Case‐Shiller Home Price Indices for November will be released as well as the Housing Price Index for the same month. The preliminary Markit Services PMI is expected to come out 54.3 as the month before while the consumer confidence for January is expected to rise up to 97.0 from 96.5 before.

Overnight, in Australia, December’s Westpac Leading Index will be released as well as its inflation rate for Q4. On an annual basis, the consumer prices are forecasted that had rose by 1.6% in the fourth quarter from 1.5% prior.

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