• Fed to stick to stable rates; will EURUSD rotate higher?

• GBPUSD at a discouraging position ahead of BoE rate announcement

• USDJPY not bearish yet as clock ticks down to BoJ rate decision

 

FOMC policy meeting --> EURUSD

The Federal Reserve's two-day policy meeting ends on Wednesday at 18:00 GMT, as worries about the Middle East and its effect on the global economy rise.

Interest rates are expected to remain steady for another month, but it's unclear if there are any plans for a rate hike in the near future. Traders are also curious if the current resilience in the US economy is durable enough to support “higher for longer rates” and if the scenario of rate cuts in 2024 is realistic after all. Of note, the next nonfarm payrolls report is due on Friday at 12:30 GMT.

In FX markets, EURUSD has been stubbornly pushing for some recovery without success lately. Despite the current negative mood in the market, traders are monitoring if the pair can escape a drop below the short-term bullish channel as it did last week. If not, the 1.0480 constraining zone could provide another opportunity for a rebound before the focus turns to July’s downtrend. The Fed must make changes to its language to signal that rates have already peaked for the pair to recover. Whether this will successfully raise the price above 1.0763 is unknown.

BoE policy meeting -->  GBPUSD

The Bank of England has been an interesting case in the central bank world, making investors reverse their projections from multiple rate hikes to a couple of rate cuts in 2024. There is no scope for a rate change when policymakers announce their policy decision on Thursday at 11:00 GMT. Hence, traders might rely on policymakers’ economic outlook to reshape their rate forecasts following the miss in business PMI readings and the rising unemployment rate.

The rejection within the 1.2160-1.2170 zone could make GBPUSD sensitive to any cautious wording, especially if the central bank does not commit to a prolonged period of elevated borrowing costs. In this case, the pair could revisit its October low of 1.2036, a break of which could clear the way towards the 1.1940 floor.

BoJ policy meeting --> USD/JPY

Japan’s 10-year government bond yield, which the Bank of Japan has committed to keep below 1% through its bond buying program, has jumped to near 0.90%. Unscheduled government bond purchases did little to press yields below the target level and USDJPY below 150 last week. Surprisingly, policymakers avoided any significant wording intervention, raising speculation that a higher range of yield volatility might be accepted when the central bank meets on Tuesday. With Tokyo core inflation having jumped to a new high of 3.4% recently, investors will keep seeking signs that the era of negative rates might soon end.

Technically, USDJPY has not confirmed a bearish bias below its 20-day simple moving average (SMA) at 149.43, despite the discouraging candlestick formation at the top of its uptrend. Should the bears claim that base, the next destination could be the 50-day SMA at 148.26.

Alternatively, a lethargic BoJ and a hawkish pause by the Fed could renew bullish pressure on the US dollar, shifting the spotlight back to the 151.93-152.35 resistance zone.