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Here are the latest developments in global markets:

FOREX: The dollar managed to recover a part of the previous days' losses against a basket of currencies that saw it eventually fall to a three-year low during Monday's trading.

STOCKS: The Japanese Nikkei 225 and Topix indices added 1.0% and 0.55% to close at their highest since 1991. Hong Kong's Hang Seng was up by 1.3%, trading at decade-high levels. Euro Stoxx 50 futures were flat at 0731 GMT, with Dow, S&P 500 and Nasdaq 100 contracts being up by 0.75%, 0.3% and 0.3% respectively. Citigroup will be reporting quarterly results before today's opening bell on Wall Street.

COMMODITIES: WTI was up by 0.2% and Brent crude traded lower by 0.5%. The former was trading not far below a fresh three-year high of $64.89 per barrel hit earlier in the day, while despite the decline Brent was still relatively close to $70.37, its highest since late 2014 recorded on Monday. Gold was little changed at $1,338.71 per ounce, trading around four-month high levels.

Major movers: Dollar recovers part of losses, kiwi declines as business sentiment worsens

The dollar index, which gauges the greenback against a basket of currencies, was at 90.60, having gained around 0.2%. This compares to yesterday's 90.46, its lowest since early 2015. The yen lost some ground versus the greenback on worries Japanese authorities may wish to curb the currency's gains. Those concerns were fueled by some comments by Japanese Finance Minister Taro Aso.

The euro, another major gainer in recent days versus the US currency, retreated a bit, though euro/dollar still remained comfortably above the 1.22 level. On Monday the pair recorded a three-year high of 1.2296 as expectations of ECB tightening – also supported yesterday by remarks by the Estonian central bank chief – and optimism on eurozone's growth boosted the currency.

Pound/dollar which hit a post-Brexit referendum high of 1.3819 on Monday's trading, retreated slightly in today's trading. Aussie/dollar and kiwi/dollar, which yesterday tracked fresh four-month highs, were declining today, most notably kiwi/dollar after a survey by think-tank NZIER showed business sentiment in New Zealand falling to a two-year low in Q4 on the back of pessimism towards the country's Labour-led government.

Also in focus is dollar/yuan, which is trading around two-year low levels and has some speculating that the Chinese government might intervene to limit the yuan's gains.

Day ahead: UK inflation expected to ease in December

The UK will publish readings on inflation measures for the month of December including consumer, producer, and retail price indices. However, investors will be mostly paying attention on the CPI measure as this is closely watched by BOE policymakers, the UK central bank's target for inflation is 2.0%.

According to forecasts, British consumer prices due at 0930 GMT are said to rise by 3.0% y/y in December after reaching the highest growth of 3.1% seen in over four years in the month that preceded. BOE Governor Mark Carney had to write an explanatory letter to the finance minister in when the measure surpassed 3.0% in the previous month, more than 1.0% above the BoE target. If inflation surprises to the upside, not only Carney would have to put his pen on the paper again but also consider whether another rate hike is appropriate.

The New York Empire State Manufacturing index, which tracks business conditions in the state of New York, is scheduled for release at 1330 GMT. Analysts anticipate the index to stand flat at +18 in January.

In commodities, changes in global dairy prices are expected to be reported today, bringing some volatility to the kiwi as New Zealand's exports are heavily depended on dairy products. The release is tentative though, without a specific time of release.

Technical Analysis: EURGBP looking neutral in short-term

EURGBP looks neutral in the short-term, moving within a relatively narrow range in recent days. The RSI is moving sideways, not far above the 50 neutral-perceived level, pointing to neutrality in the short-term.

For the pair to return to bullish mode in the short-term, it needs to break above the previous top at 0.8927, which coincides with the 38.2% Fibonacci of the downleg from 0.9305 to 0.8689. Further increases from here have the potential to target the 0.90 key level (50% Fibonacci) and the 61.8% Fibonacci at 0.9067.

If instead the market weakens, an immediate support is likely to be met at 0.8878 where the 20- and the 50-day MA are currently located. Not far away is the 23.6% Fibonacci of 0.8836 which could also act as support.

Today's inflation figures out of the UK have the capacity to move the pair in either direction.

Based on the higher-than-expected inflation print on Friday and the hawkish comments from influential NY Fed president William C. Dudley, we change our call and now expect the Fed to deliver the next hike at the March meeting. Markets have now priced in an 85% probability of a March hike and given that markets are calm and growth remains strong, it seems like a good time to hike.

However, do not necessarily expect the Fed to change its communication at the upcoming meeting on 31 January, as this is one of the small meetings without updated projections and a press conference. The accompanying statement usually does not change much from meeting to meeting. More important are the individual speeches.

We also change our call and now expect three hikes (previously two) with the second hike likely in June and the third one in December (obviously it is a bit difficult to distribute three hikes throughout the year, as the Fed so far has been reluctant to move on one of the smaller meetings). The three hikes are in line with the Fed’s dots and consensus among economists. Markets have priced in a 50/50 probability of another Fed hike in June.

While we expect the Fed to hike three times, we maintain our view that inflation pressure will remain subdued, although it is likely to increase from current low levels, and hence we think it is unlikely that the Fed is going to hike more than it is currently signalling (three hikes). However, the Fed is still tightening, as the FOMC members have a strong belief in the Phillips curve theory suggesting that the tighter labour market will eventually push wage growth higher, and also they have a tendency to put more weight on labour market data than inflation.

It is worth noting that the discussions among the FOMC members on why inflation has run below the 2% target persistently are intensifying and inflation will remain an important market theme this year.

GBPUSD is pausing a 2-day rally that took the pair to its highest level since June 19, 2016, in the 1.38 handle. The outlook remains bullish after the market surged above 1.3600 last Friday.

The immediate bias is neutral but there is scope for a re-test of yesterday’s high of 1.3819. From this point, the focus turns to the 1.4100 area.

Dips are expected to find support in the lower 1.37’s (between yesterday’s low of 1.3724 and 1.3700). Major support is seen at 1.3600.

The odds for significant losses look limited at the moment and the broader trend higher looks well-rooted in the short and medium term, with trend and momentum indicators being bullish in both time frames.

NZDUSD (0.7291): The New Zealand dollar followed a bullish engulfing pattern on the daily charts yesterday as price rallied to a 4-month high. NZDUSD closed at 0.7294. The strong breakout from the falling trend line suggests an imminent pullback in the near term. Support is seen at 0.7160 which could be tested in the medium to short term period. However, as long as NZDUSD remains firm above 0.7294, we expect to see further gains coming in store.

USDJPY (110.92): The USDJPY fell to 110.70 levels where after a brief spell of consolidation, price action is looking to post a rebound. On the intraday charts, USDJPY is seen currently struggling near the 111.00 - 110.88 level of resistance. A reversal at this resistance level could signal that USDJPY could potentially push lower. Breaking below the current lows at 110.70 could signal further declines to 110.00. However, this view could change if USDJPY manages to close above the resistance level. A new sideways range could be establishing within 111.61 - 111.00 region.

EURUSD (1.2264): The EURUSD posted fresh highs yesterday as price action rallied to 1.2262. The bullish momentum in the euro came amid a renewed hawkish talk from one of the ECB officials. Price action is trading close to the major resistance level of 1.2300 but we expect to see a further retest of this resistance level before we can expect a correction. Towards the downside, initial support is found at 1.2090 - 1.2070 where the declines could stall in the near term. Establishing support at this level would signal further gains that could come in the near term.

The U.S. dollar opened on Monday on a weak note as the currency index was seen trading near the 90.17 handle. The declines in the USD led to a strong rally among its peers amid the U.S. holiday. The EURUSD was seen notching gains for yet another day as the common currency continued to rally through the day.

The economic calendar was sparse with not much of details to go by, leaving most of the trading to technical and broader macro-themes. The USD is expected to continue its bearish trend in the near term. However, with the ECB's meeting coming up next week, there is speculation that the ECB officials could talk down the common currency. At the same time, the hawkish meeting minutes from December raises the prospects that the ECB could maintain a balanced tone, if not coming out more hawkish.

Looking ahead, the economic data for the day will see the UK's annual inflation released. Economists forecast that the annual inflation rate rose 3.0% for the month ending in December, a slightly lower pace compared to the 3.1% increase seen the month before. Core CPI is expected to rise 2.6% on the year ending in December, down from 2.7% previously.

SNB Chairman Thomas Jordan is expected to speak during the day as well.

The U.S dollar has moved higher against the Japanese yen in early Tuesday trading, as the U.S dollar index stages a recovery towards the 90.50 level. The USDJPY currently trades around the 110.90 region, after the pair quickly fell towards the 110.30 support level during a volatile Monday trading session. Traders now look to the next directional move in the U.S dollar index, and the return of United States financial markets, after the Martin Luther King Day holiday.

USDJPY sellers retain control of the pair while price trades below the 111.22 level, further intraday losses towards the 110.33 and 109.80 are expected.

Should the USDJPY pair start to move above the 111.22 level, a recovery towards 111.45 and 111.74 remains possible.

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The British pound continues to trade at elevated levels against the U.S dollar, with price-action still holding towards the 1.3800 technical level. Going forward, the GBPUSD pair threatens further intraday upside toward the 1.3900 level, with the U.S dollar index still appearing vulnerable to further losses. Traders now look to the release of December Consumer Price Index inflation data from the UK economy this morning, with the Bank of England increasingly likely to hike UK rates if inflation remains high.

The GBPUSD pair remains strongly bullish while trading above the 1.3769 level, further upside towards 1.3818 and 1.3890 remains possible.

Should price-action on the GBPUSD pair slip below the 1.3769 level, sellers may target towards the 1.3720 and 1.3657 levels.

Action begins at 07:00 GMT with a pair of German reports centered on inflation. The wholesale price index will provide a snapshot of wholesale values in Europe’s largest economy. Meanwhile, the consumer price index (CPI) will show the average price change for all goods and services purchased by German households. The CPI indicator is forecast to rise 0.6% in December, which translates into a year-over-year gain of 1.7%.

The harmonized index of consumer prices (HICP), which tracks German inflation using a method consistent throughout the European Union, is expected to climb 1.6% annually.

Forty-five minutes later, the French government will provide a reading of the monthly budget for November. Paris ran a deficit of €77.2 billion in October.

The Italian government will also report on regional and global trade at 09:00 GMT. One hour later, the government will report.

Shifting gears to the United Kingdom, the Office for National Statistics will release a spate of inflation figures at 09:30 GMT, including the retail price index, producer price index and consumer price index. Most traders will be keeping a close eye on CPI. The producer price index is projected to climb 6% year-over-year.

Consumer prices in the UK are forecast to climb 3.2% annually in December, up from 3.1% the previous month. Rising inflation has forced the Bank of England (BOE) to raise interest rates after cutting them following the 2016 Brexit vote.

There are no major economic releases scheduled in the United States on Monday. Markets were closed at the start of the week for Martin Luther King Jr. Day. The US government will report on industrial production and capacity utilization on Tuesday, followed by a report on housing starts and building permits. Separately, the Philadelphia Federal Reserve Bank of Philadelphia will issue its monthly manufacturing survey.

The Swiss National Bank’s Chairman Thomas Jordan will issue a speech at 17:00 GMT.

EUR/USD

Europe’s common currency held steady on Monday, as the dollar took a pause on the holiday. The EUR/USD exchange rate was last seen trading at 1.2262, where it was little changed from the previous close. The pair faces immediate support at 1.2220, followed by 1.2180. On the opposite side of the spectrum, resistance is likely seen at 1.2300 followed by 1.2340.

GBP/USD

Cable continued higher on Monday, with prices briefly crossing 1.3800 for the first time in 18 months. The GBP/USD was last seen trading at 1.3791. The pair has started 2018 on a high note, and the bulls are now eyeing the psychological 1.4000 level. Along the way, the pair is likely to face resistance at 1.3945.

USD/JPY

The USD/JPY is in a firm downtrend, as the dollar continues to lose traction against a basket of world currencies. Th USD/JPY rebounded 0.3% on Tuesday, but continued to trade below 111.000. The pair faces immediate resistance at 111.15.