The Treasury's first quarterly report since Yellen took office came as a surprise to the markets – with the Treasury lowering its emissions target by more than $800 billion in the first quarter alone. Treasury expects to borrow $274 billion this quarter and only $95 billion in the second quarter, well short of the actual funding requirement. In turn, this means that the cash account will be used for spending, which is finally a signal that the US dollars held in the Treasury account at the Fed will be allowed to flow into the commercial banking system.

If we assume that the Fed will continue to buy in QE for 120 billion per month, then the total increase in liquidity in the first half of the year could amount to 1.6-1.8 trillion dollars.

Such large-scale measures should lead to a cheaper dollar, and as soon as the process begins, the dollar pullback will end immediately. So, in any case, logic suggests, but let's not rush, there may be only a redistribution of resources - Yellen suggests spending free money to contain the wave of emissions, which in one way or another should cover the US monetary system due to excessively inflated debt and rapidly growing budget deficit.

Before the publication of the nonfarm payrolls, the markets are calm, the dollar continues to strengthen, which indicates positive expectations from the report.

EUR/USD

Core inflation in the eurozone rose to 1.4%, which is above 0.2% in December. In part, this unprecedented growth is due to another revision of the calculation methodology, and it is also unlikely to have an impact on the ECB's position that aggressive budgetary spending is required to restore the economy, and a hypothetical rate hike would have disastrous consequences. The ECB is more concerned about a likely decline in inflation, rather than growth, so we will not see any changes in policy from such an unexpected rise in January.

In the previous review on Monday, we expected the breakout of the support zone at 1.2050/60, with the target at 1.2000 and beyond at 1.1900/30, where the euro may find temporary support. The 1.1900/30 zone will require significant effort from the bears, as it is a fairly strong technical level, but the chances of a break below are still higher than a pullback to the upside. A temporary bottom can be found in the 1.1800/30 zone, the next technically significant level is located at 1.1695.

GBP/USD

The pound is the only G10 currency that keeps up with the dollar. After the meeting of the Bank of England ended without any changes in monetary policy, as expected, the pound regained the fall of the previous day, since in the final statement the Bank stressed that it does not intend to give any signals about the possibility of introducing negative rates, but only intends to ask regulators to prepare for such an event should it ever become necessary in the future. Moreover, the Bank of England believes that preparations for the introduction of negative rates should continue for at least 6 months.

The players considered this formulation hawkish. Actually, the outcome of the meeting of the Bank of England is logical - there is no reason to consider negative rates, except for political ones. The coronavirus pandemic is declining due to both large-scale vaccinations and seasonal factors. The economy is showing decent resilience, with the PMI Markit manufacturing index in January at 54.1p, and the slowdown in the services sector is mainly due to restrictions.

The NIESR Institute, analyzing the situation with the growth of wages, concluded that 2020 ended better than it began.

Nevertheless, even such an unexpected positive is unlikely to last long, the targets remain the same. If today the report on the US labor market does not prove to be a failure, the pound will return to the downward trajectory by evening, we expect a decline to the support zone 1.3480/3500, after which a more stable movement towards the main target 1.3200.