European FX Outlook: The Eurozone inflation set to remain below ECB target

What you need to know before markets open:

• Rumours of the ECB ditching bond purchases as early as next week appeared on the market.
• Bitcoin slumped massive double-digit percent on Tuesday as governments ponder regulation or ban of the exchanges.
• The Bank of Canada is set to hike rates by 25 basis points to 1.25% as the world’s first major central bank this year.

Wednesday’s market moving events

• The Eurozone inflation is expected to rise 1.4% y/y in December while core inflation is expected to rise 1.1% y/y.
• The Bank of England Monetary Policy Committee member Michael Saunders launches
• Financial Intermediary and Broker Association meeting in London at 11:45 GMT.
• The US Industrial production is seen rising 0.4% m/m in December.
• The Bank of Canada is seen lifting the policy rate by 25 basis points to 1.25% at its monetary policy meeting.
• The Bank of Canada Governor Stephen Poloz and Deputy Governor Carolyn Wilkins will hold a press conference to discuss the monetary policy in Ottawa at 16:15 GMT.
• The Fed publishes its Beige book with economic assessment for all twelve regional district reports.
• Dallas Federal Reserve Bank President Robert Kaplan to participate in a moderated session at the “American Council of Life Insurers Executive Roundtable” in Palm Beach, Florida at 20:15 GMT.
• Cleveland Federal Reserve Bank President Loretta Mester to discuss monetary policy communications at the “Tangri Lecture at Rutgers University” in New Brunswick, New Jersey at 21:30 GMT.

Major forex market movers

• Bitcoin was a loser of the day falling 17% on reports of South Korea banning the cryptocurrency exchanges.
• The US Dollar index retreated from lows after four days of losses jumping up some 0.4% on Tuesday.
• The EUR shook off political uncertainty stemming from Berlin branch of SPD voting against a coalition with Merkel’s CDU/CSU.
• CAD will be in the spotlight today with the Bank of Canada expected to deliver a 25 basis points rate hike.

Tuesday’s macro summary

• German consumer inflation rose 0.6% over the month and 1.7% y/y in December.
• German wholesale prices rose 3.5% on average in 2017 compared to 2016.
• The UK inflation decelerated to 3.0% y/y in December, with core inflation also decelerating to 2.6% y/y.
• The Bank of England Deputy Governor Sam Woods said the Bank’s contingency planning will be stepped up if there is no Brexit transition agreement by the end of Q1.
• The Czech central banker Benda said long-term neutral interest rate is close to 2.6%-3%.
• Banque de France Governor and the ECB Governing Council member Villeroy said that recent Euro increase is a source of uncertainty that requires monitoring because of its possible downward effects on imported prices and inflation. I warned of the ECB verbal intervention last week and it took four days for it to materialize. See details here.
• The US Empire State manufacturing index reached 17.7 in January.Conditions for manufacturing companies remained good with 32% reporting improving conditions, while
• 15% reported that conditions had worsened.
• Reuters is citing “sources” with rumors about the ECB ditching its bond-buying as early as next week.
• Bundesbank President Jens Weidmann said it is right to expect a rate hike in mid-2019.