The Dollar managed to gain a foothold after touching 100-day SMA on Friday, but on Monday the recovery was difficult - the dollar index dangled near the week’s opening:

Sellers have broken the uptrend that has lasted since June 2021, so ongoing correction may take place in several stages. The main resistance in the index, where a wave of sales may occur, is the level of 95.50.

A series of data on the US economy last week pointed to a slight weakening of activity in December, which made it possible to remove overbought from the dollar. This includes a report on retail sales, industrial production and consumer sentiment from U. Michigan. In particular, the latter indicator once again fell short of forecasts and, due to the negative perception of high inflation by households, has been at its lowest level since 2012:

At the same time, the decline in confidence was uneven and primarily affected lower-income households, which, however, have a higher propensity to consume. In the list of reasons that led to a decrease in consumer confidence, high inflation was in first place among 3/4 of the respondents.

The growing negative impact of inflation, which at one point could begin to curb aggregate consumption, could force the Fed to accelerate the pace of stimulus withdrawal. So, in part, the report could raise the chances of a hawkish FOMC decision in March. According to futures markets, investors are almost certain that the Fed will raise rates in March:

The general positive mood on the markets today was supported by data on the Chinese economy and the PBOC policy. The growth of industrial production and investment in fixed assets in December was higher than expected, GDP in the fourth quarter grew by 4% (forecast 3.6%). The Central Bank of China cut its one-year lending rate more than expected to 2.85% (2.95% forecast). This was another signal that the central bank is looking to ease policy.

The EURUSD rally last week failed to thoroughly test the 1.15 zone. The balance of risk remains tilted to the downside after last week's dollar long squeeze as Fed policy expectations continue to form that the FOMC will clear plans for several rate hikes this year and presumably a QT asset sale on the March meeting. The ECB is not yet able to offer a weighty counterargument, since although inflation is growing, it is not uniform and there is no incentive to rush.

Apart from the data from ZEW on the German economy, there are no interesting data on the Eurozone this week. The focus will be on the minutes of the December meeting of the ECB (release on Wednesday) and the comments of Lagarde, Villeroy and Holzmann.

As for the pound, there is a risk that Johnson's removal from the post of prime minister may cause some uncertainty and negatively affect British assets, but so far, the key factor for the pound is rather aggressive stance of the Bank of England in terms of rate hikes. Closer to February 4, when the meeting will take place, some strengthening of the GBPUSD and especially the EURGBP is possible on the expectations that the Central Bank's hawkish maneuver will beat expectations. On Tuesday and Wednesday, data on the labor market and inflation in the UK are expected, which, in the light of the upcoming meeting, may also support the British currency.