Pound Looks to CPI for Direction, Euro Eyes Spain Bailout Hopes

The British Pound looks to January's CPI data in hopes of a rebound trigger. The Euro is looking for Spain bailout request cues as Draghi meets with Mariano Rajoy.

Talking Points

• British Pound Looks to CPI to Set the Stage for BOE Inflation Report
• Euro May Rise if Spain Bailout Hopes Reemerge as Draghi, Rajoy Meet
• Yen Rose as North Korean Nuclear Bomb Test Drove Haven Demand

UK Consumer Price Index figures headline the economic calendar in European hours. Expectations suggest the headline year-on-year inflation rate will remain at 2.7 percent in January, unchanged from the prior month. A softer print has scope to weigh on the British Pound, reinforcing yesterday's rumors of a dovish lean in the upcoming BOE quarterly inflation report. An outcome in line with expectations may offer a bit of room for a corrective recovery however as markets shift toward neutral ahead of tomorrow's event risk. Needless to say, a number north of expectations would amplify the likelihood of such a scenario.

Meanwhile, ECB President Mario Draghi is scheduled to meet with Spanish Premier Mariano Rajoy. Borrowing costs in the Eurozone's fourth-largest economy have crept higher recently and now hover just below a two-month high amid calls for Rajoy's resignation on corruption accusations. Traders fear that the Prime Minister's exit would compromise crucial reforms aimed at putting Spain's fiscal house in order.

With that in mind, traders will keep a close eye on any commentary that comes from the sit-down to gauge whether the much-anticipated Spanish bailout request that activates the ECB OMT bond-buying program will emerge (at least rhetorically). Such an outcome has scope to reduce sovereign stress fears and boost the Euro.

The Japanese Yen outperformed in overnight trade, adding as much as 0.6 percent on average against its top counterparts. The advance appeared to reflect an influx of safety-seeking flows into the regional haven currency following reports that North Korea conducted an underground nuclear weapon test.

Asia Session:

GMT	CCY	EVENT	ACT	EXP	PREV
21:45	NZD	NZ Card Spending - Retail (MoM) (JAN)	0.3%	0.3%	0.3%
21:45	NZD	NZ Card Spending (MoM) (JAN)	0.4%	-	0.3% (R-)
23:50	JPY	Japan Money Stock M2 (YoY) (JAN)	2.7%	2.6%	2.6%
23:50	JPY	Japan Money Stock M3 (YoY) (JAN)	2.3%	2.3%	2.2%
0:01	GBP	RICS House Price Balance (JAN)	-4%	1%	-1% (R-)
0:30	AUD	RBA Credit Card Balances (A$) (DEC)	49.9B	-	49.5B
0:30	AUD	RBA Credit Card Purchases (A$) (DEC)	22.4B	-	21.8B
0:30	AUD	NAB Business Conditions (JAN)	-2	-	-5 (R-)
0:30	AUD	NAB Business Confidence (JAN)	3	-	2 (R-)
5:00	JPY	Consumer Confidence (JAN)	43.3		39.2
6:00	JPY	Machine Tool Orders (YoY) (JAN P)	-26.1%		-27.5%

Euro Session:

GMT	CCY	EVENT	EXP/ACT	PREV	IMPACT
8:15	CHF	Consumer Price Index (MoM) (JAN)	-0.3% (A)	-0.2%	Medium
8:15	CHF	Consumer Price Index (YoY) (JAN)	-0.3% (A)	-0.4%	Medium
9:30	GBP	PPI Input n.s.a. (MoM) (JAN)	0.8%	-0.2%	Low
9:30	GBP	PPI Input n.s.a. (YoY) (JAN)	1.0%	0.3%	Low
9:30	GBP	PPI Output n.s.a. (MoM) (JAN)	0.2%	-0.1%	Medium
9:30	GBP	PPI Output n.s.a. (YoY) (JAN)	2.0%	2.2%	Medium
9:30	GBP	PPI Output Core n.s.a. (MoM) (JAN)	0.1%	0.0%	Low
9:30	GBP	PPI Output Core n.s.a. (YoY) (JAN)	1.4%	1.5%	Low
9:30	GBP	ONS House Prices (YoY) (DEC)	2.0%	2.1%	Low
9:30	GBP	Retail Price Index (JAN)	245.6	246.8	Low
9:30	GBP	RPI (MoM) (JAN)	-0.5%	0.5%	Low
9:30	GBP	RPI (YoY) (JAN)	3.2%	3.1%	Medium
9:30	GBP	RPI Ex Mort Int. Payments (YoY) (JAN)	3.1%	3.0%	Low
9:30	GBP	Consumer Price Index (MoM) (JAN)	-0.5%	0.5%	High
9:30	GBP	Consumer Price Index (YoY) (JAN)	2.7%	2.7%	High
9:30	GBP	Core Consumer Price Index (YoY) (JAN)	2.4%	2.4%	Low

Critical Levels

CCY	SUPPORT	RESISTANCE
EURUSD	1.3345	1.3448
GBPUSD	1.5605	1.5762

--- Written by Ilya Spivak, Currency Strategist for Dailyfx.com

To contact Ilya, e-mail ispivak@dailyfx.com. Follow Ilya on Twitter at @IlyaSpivak

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