• EURUSD hovers near key 1.0665 ahead of Fed decision

• A dovish BoE could trigger reversal confirmation in GBPUSD

• BoJ to stand pat; may help USDJPY extend its uptrend

Fed rate decision -> EUR/USD

The Fed is expected to stand pat on Wednesday, with the markets seeing only a 40% probability of another hike before this tightening campaign ends and around 80bps worth of rate cuts for next year. Thus, all the attention is likely to fall on the updated economic projections and the new dot plot.

EURUSD suffered last week after the ECB decision and may come under more pressure if the Fed’s dot plot confirms the case of another hike and points to less cuts than the market currently anticipates. Clearing the 1.0665 zone could confirm a bearish trend reversal and perhaps pave the way towards the 1.0530 territory, which offered strong support back in February and March.

BoE rate decision -> GBP/USD

The BoE is forecast to hike by 25bps on Thursday, but it seems that it will not be an easy decision. With UK data pointing to economic softness and inflation remaining very high, the Bank appears to be in a dilemma. Therefore, the vote count could attract special attention.

If a hike is a close call, this could convince investors that the BoE is closer to its own tightening end than they previously thought and GBPUSD may extend its latest declines, especially if the Fed appears hawkish the day before. The pair is hovering above the 1.2300/60 zone, the break of which could signal a medium-term trend reversal and may encourage the bears to dive all the way down to the psychological round figure of 1.2000, marked by the low March 15.

BoJ rate decision -> USD/JPY

The BoJ already adjusted its yield curve control policy in July, and now is expected to take the sidelines while it still evaluates the effects of its previous action. With that in mind, a sidelined BoJ on Friday combined with a hawkish Fed on Wednesday may be a recipe for further advances in dollar/yen as the gap between US and Japanese yields continues to widen.

USDJPY continues to drift north, above the uptrend line drawn from the low of March 24, currently trading at around 147.60. Further extensions could test the 148.85 zone, the break of which could pave the way towards the peak of October 21, at around 151.85.