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Will overheating inflation push the BOE and BOC to act soon?

Here’s why the upcoming CPI readings from the U.K. and Canada might be worth keeping tabs on.

If you’re planning on trading the major currencies this week, here’s a list of the top-tier economic calendar events you’ll need to watch out for:

Major Economic Events:

Chinese quarterly GDP (Jan. 17, 2:00 am GMT) – China posted stronger than expected growth figures for the last quarter of 2021, as the economy grew by 4.0% versus the consensus of a 3.3% expansion.

Industrial production was also stronger than expected, rising by 4.3% versus the expected 3.7% gain. However, the retail sales component came up short with a 1.7% gain instead of the projected 3.8% increase.

BOJ monetary policy decision (Jan. 18) – No actual changes are expected for the Japanese central bank’s interest rate or quantitative easing program for now, but traders are keen to find out if the BOJ’s bias has changed.

Any indication that they’re open to the idea of reducing stimulus soon could be bullish for the yen since this might put the central bank closer to hiking rates down the line.

U.K. CPI (Jan. 19, 7:00 am GMT) – Pound traders have been trying to place bets on the timing of a BOE rate hike, so the upcoming inflation release would likely impact their bias.

Headline inflation is slated to tick higher from 5.1% to 5.2% while the core version of the report likely dipped from 4.0% to 3.9% in December. Producer input and output price gains likely slowed as well.

Still, stronger than expected results could up the odds of a BOE hike happening soon since the central bank has been hoping to keep price pressures in check.

Note that the annual CPI is already at its highest level in ten years and is more than twice the central bank’s target rate. Any gains past this point could mean more pressure on the BOE to act soon!

Canadian CPI (Jan. 19, 1:30 pm GMT) – Canada’s inflation figures are of particular interest this week as well since there have been talks of a BOC rate hike coming soon.

If the actual figures beat forecasts of a 0.1% dip for the headline figure and also show gains for the other versions of the CPI reading, Loonie bulls could charge on hawkish BOC hopes.

Australian jobs data (Jan. 20, 12:30 am GMT) – After posting a jaw-dropping 366.1K gain in hiring for November, employment probably slowed with a 60K increase for the previous month.

This should still be enough to bring the unemployment rate down from 4.6% to 4.5% for the month, reflecting an improvement in the jobs market. Stronger than expected results might bring even more gains for the Australian dollar.

Forex Setup of the Week: GBP/USD

GBP/USD 4-hour Forex Chart
GBP/USD 4-hour Forex Chart

I’ve still got GBP/JPY’s range from last week on my radar, but this week I’ll also keep tabs on this potential break-and-retest play on GBP/USD.

You see, the pair busted through a long-term falling trend line that’s been holding since May last year, so I’m thinking a major reversal is in order!

Price hit a roadblock on its rally around the 1.3750 minor psychological mark, so a pullback to the broken resistance might be in the works. Using the Fib retracement tool reveals that this is right smack in line with the 38.2% level near the 1.3500 mark.

If buyers return at this point, Cable could resume the climb back to the swing high and beyond!

The 100 SMA is above the 200 SMA to suggest that the climb is likely to resume sooner or later, but Stochastic has room to head south so the correction could keep going until oversold conditions are met.

Oh, and did I mention that the 100 SMA lines up with the area of interest around 1.3500, too?

A larger correction could still dip to the 61.8% Fib near the 200 SMA dynamic support, which might be the line in the sand for a pullback.

Just make sure you set your stops properly when trading this one since the U.K. inflation release could bring a lot of volatility.