Week of Feb 20

A relatively quiet week regarding macro data allowed for a more robust response to other events, such as the nomination of a new BOJ governor. US CPI came in modestly above expectations, while UK inflation was below estimates. The focus of this week is on the FOMC minutes as fourth-quarter earnings season starts to wind down.

Top Events in Review

• Tuesday was the busiest day for macro events, with the announcement of a relatively unknown academic, Kazuo Ueda, being nominated to replace Haruhiko Kuroda as the head of BOJ. With the ruling coalition in Japan having a commanding majority in Parliament, it's now seen as a done deal, with traders trying to decipher what his positions are on key monetary policy challenges. USD/JPY hit a 2-month high at 135.00, where it found temporary resistance.
  
  
• Later in the day, the US reported January CPI figures, which were bang in line with the monthly, but hotter than expected annually, with the situation provoking some whipsawing in the markets. Real wages accelerated into the negative, but retail sales and empire manufacturing were better than expected. Gold fell more than 2% to a 2-month low, bringing the $1800/oz handle into focus.
  
  
• In the UK, inflation came down more than expected, particularly on the monthly change, which showed deflationary pressure. The news boosted British stocks, and the FTSE reached a record high but weakened the pound as it relieved some pressure on the BOE to keep hiking. Cable lost nearly 1% and registered a 6-week low at $1.19. $1.20 has turned into resistance. 
  
  
• Reports circulated that the EU was working on a 10th sanctions package on Russia. 
  
  
• Scottish First Minister Sturgeon resigned but would head a caretaker government until the SNP elected a new leader. 
  
  
• OPEC's monthly report raised demand expectations for the coming year, but the weekly API and EIA reports were the primary suspects of the fall in WTI prices. Oil fell 4% before regaining some of its losses but closed nearly 3% down. $73/bbl remains critical support, with $80/bbl a short-term ceiling.

Top Events in the Week Ahead

The US will be on holiday on Monday, giving some markets a slower start to the week. 

Markets Await for Clarity Around Ueda 

There is likely to be considerable focus on an expected hearing for the nominee to be governor of the BOJ, scheduled on Tuesday. Analysts will likely be keen to get more concrete answers to Ueda's position on important policy issues since he's made very few public statements on monetary policy. After news of his nomination leaked, he provided comments that suggested both support for continuing the current policy and revising it. EUR/JPY could revisit 146.00 or 141.50.

Fed Minutes and Remarks in Focus

The theme for the week could be minutes from the latest central bank meetings. The RBA will disclose its minutes on Tuesday, but the focus will likely be on the FOMC minutes on Wednesday, especially after Powell talked about only "a couple" of more hikes before the Fed reaches its top rate and holds. Notably, last week two Fed members hinted at a 50bps hike at the next meeting, so there is likely to be increased attention to see if other officials comment similarly. EUR/USD could break below $1.06 if the minutes are more hawkish than dovish. It is likely to remain under pressure below $1.08 regardless.

Canada and Japan CPIs

Canada is expected to report another major drop in inflation last month, further justifying the BOC's position to take a pause in the hiking cycle. According to the latest consensus, both core and headline inflation are expected to drop by the same amount. Japan's inflation is expected to tick up another decimal to 4.1% and hit another multi-decade high. The next potential change in policy would be another adjustment in YCC, with higher inflation expected to lead to another market challenge of the control bounds potentially. USD/CAD rose more than 1% to $1.35, meeting local resistance. Breaking higher could see $1.36 and $1.37 or slide towards $1.34 in the event of dollar weakness.

Other events and earnings

Wednesday has the Australian wage price index and the German Ifo Business Climate Survey. Thursday has EuroZone final CPI figures, which are expected to be revised higher due to the delay in reporting German data earlier in the month. Friday sees GfK Consumer Confidence in the UK and Germany and Personal Income and Spending data releases from the US. Earnings season is expected to slow but remains quite busy with reports from Walmart, Home Depot, Antofagasta, Nvidia, TJX, Smith & Nephew, Alibaba, Intuit, Lloyds, British Airways, Berkshire Hathaway and Rolls Royce, among others