This week the central banks are back at the center of attention and they will be the focus of trading next week as well, more than anything else. Last Friday, we heard some dovish comments from Mary Daly, which is the mouthpiece of Jerome Powell. So, that was a hint of a peak in FED hawkishness, which was enough for the USD to turn bearish and the broader market sentiment to recover strongly. Imagine the sort of turn we might get when the FED finally pivots which will come at some point not so far away from now.

The next two weeks will be crucial for the market sentiment and the USD, as we will have to weigh up whether or not the FED will shift towards a “less aggressive” path after the 75 bps rate hike which is a done deal for November. That could initiate broader market relief which will benefit the risk assets such as commodity dollars, but we’ll have to wait and see when we get to that bridge on 2 November.

So, it’s all about the central banks, as well as the intervention of the UK bond market and in USD/JPY by the Ministry of Finance of Japan. Stock markets and bonds will also be taking hints from what policymakers will be signaling on the tightening cycle as well as on the inflation and economic outlook. Bank of Japan has stayed on the sidelines as other major central banks have raised rates, but as things are right now, the next BOJ meeting decision might have the potential to catch markets offside so just be wary of that.

26 October – Bank of Canada monetary policy decision
27 October – European Central Bank monetary policy decision
28 October – Bank of Japan monetary policy decision
1 November – Reserve Bank of Australia monetary policy decision
2 November – US Federal Reserve monetary policy decision
3 November – Bank of England monetary policy decision

EUR/USD was rejected by the 200 SMA (purple) today, after surging on Friday, but buyers came back and reversed the price higher, now testing this moving average again. This shows that markets are uncertain and are adjusting ahead of the central banks meetings.

EUR/USD H4 Chart – Buyers Testing the 200 SMA

The main trend still remains bearish for EUR/USD