UK Inflation at 14-mth Lows, ZEW Edges up

BOJ increases QE and sets inflation target; UK inflation continues to decline; German ZEW improved and Eurozone industrial production fell. Market turns to retail sales and business inventories. Todays Bank of Japan decision comes on the heels of disappointing GDP data. Monday evenings Premium Intermarket insights saw oil & GPJPY hitting all targets and one EURUSD stopped out by3 pips.

USD is weaker against all majors except JPY. European equities rose 0.5% and the relative strength loser is JPY.

JPY is lower as the BOJ unexpectedly increased the size of its asset purchase program by 10 trillion yen (nearly USD 130 bln) to 30 trillion yen and set a 1% inflation target. The overnight call rate was kept between 0 and 0.1%. USDJPY reached the key short term resistance at 78.20 but it failed to break it.

In light of tomorrows meeting of Eurozone finance ministers, it was surprising to hear German Finance minister Wolfgang Schaeuble who said that "if attempts to keep Greece in the Eurozone fail, we are better prepared than two years ago." Greek officials should present additional EUR 325 million savings that were required in order to secure the EUR 130 bln financial aid.

Annual consumer inflation in the UK declined in January to 3.6% (lowest since Nov 2010) from previous 4.2% (-0.5% from 0.4% m/m). BOE governor King reiterated his view today that the inflation will fall back to around 2% target by the end of 2012. GBP is the worst performing G10 currency after JPY.

The common currency along with other majors started to gain after German ZEW economic sentiment improved significantly as it printed 5.4 in February after -21.6 in January. The market ignored Eurozone industrial production that fell in December 1.1% from 0% m/m which translates to a 2% decline from 0.1% y/y.

Strong Italian auction also helped to improve the sentiment as Italy was able to sell EUR 6 bln worth of bonds (3.75 to 6 bln target). Average yields declined and bid to cover improved.

ECB deposits rose again and reached EUR 510.2 bln on Monday.

The NY session starts at 8:30 am ET with retail sales that are expected to grow 0.8% in January from December's 0.1%. Core sales are seen higher at 0.6% after contracting 0.2% a month earlier.

Business inventories are due at 10:00 am EST and should show 0.4% increase in December from previous 0.3%.

At the end of the session at 4:45 pm EST New Zealand will release Q4 retail sales that are seen lower at 1.3% from 2.2% (core exp. 1.1% from previous 2.4%).

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