European Session

In the European session, the focus is on the final Eurozone Consumer Price Index (CPI) report. However, this release is unlikely to move the markets significantly, as traders typically pay more attention to the earlier Flash CPI report. Historically, deviations between the preliminary and final figures are rare, so any market reaction is expected to be muted.

More importantly, today’s session—and the coming days—will be dominated by developments in the ongoing trade tensions sparked by former US President Trump. He has announced tariffs of 10% starting 1 February, rising to 25% from 1 June, targeting Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland. These measures are linked to the US’s interest in purchasing Greenland. The initial reaction to these tariffs has been risk-off sentiment across markets, and this cautious mood is likely to continue unless a clear de-escalation occurs. A potential easing of tensions might happen later in the week, possibly during the World Economic Forum in Davos, where Trump and other leaders are expected to meet.

American Session

In the American session, Canadian inflation data will take centre stage. The key figure to watch is the Trimmed Mean CPI year-on-year, a preferred measure by the Bank of Canada (BoC), which is forecast to come in at 2.7%, slightly down from the previous 2.8%.

Following an unexpectedly strong Canadian jobs report in November, the market had fully priced in a BoC rate hike by 2026. However, the bank’s recent policy meeting did not support these expectations, citing weaker economic details and maintaining that underlying inflation remains close to target.

The latest inflation report disappointed on the downside, resulting in a scaling back of hawkish bets. Market expectations now reflect just 11 basis points of tightening by year-end, down from 25 basis points before the inflation data release. Meanwhile, despite the strong November jobs figures, they were not as robust as those recorded previously.

It is also important to note that US stock and bond markets will be closed today due to a US holiday, which could affect liquidity and market activity.

Central Bank Speakers

At 13:00 GMT/08:00 ET, ECB’s Thomas Donnery, a neutral policymaker and voter, is scheduled to speak, which may offer additional insights for forex traders.

Original Source: Giuseppe Dellamotta of investinglive.com