• EUR/USD in neutral zone ahead of ECB policy announcement

• USD/CAD needs more upside as BoC rate decision looms

• USDJPY at a critical resistance territory; bunch of US data due

 

ECB policy meeting --> EUR/USD

EURUSD is stuck in a sideways trend above its 10-month low, but there is hope for a bullish reversal as the European Central Bank comes into public's attention this week.

Policymakers will gather in Athens on their annual getaway from Frankfurt to decide on interest rates on Thursday. The tightening path is expected to take a halt for the first time in more than a year, leaving borrowing costs at the highest in 22 years at 4.25%.

But the announcement will not be a big surprise to investors as central bankers have already telegraphed a pause. What is still unknown is whether there will be any additional rate increases in the year ahead as new geopolitical risks have popped up in the Middle East, threatening a resurgence in inflation.

Given its data dependency and signs of a contracting economy, the ECB will probably hold off from signaling more rate increases. Still, any Fed-like comments calling for higher-for-longer interest rates could add some support under the euro.

Technically, EURUSD's close above the bearish channel on Friday gives hope that the sell-off may have bottomed out. That said, the pair seems to be hovering within a neutral symmetrical triangle at 1.0600, while a decisive rally above 1.0760 is still required to eliminate negative risks.

BoC policy meeting --> USD/CAD

Prior to the ECB announcement, the Bank of Canada is forecast to keep rates stable at 5.0% for the second consecutive month on Wednesday. Easing inflation pressures and sluggish economic growth make additional rate hikes unnecessary. Hence, it would be interesting to see whether the BoC will keep the door open to more tightening this time.

In charts, USDCAD managed to crawl back above the key barrier of 1.3700, albeit marginally. There are positive signs in the market, but the pair will need another positive close to confirm a bullish continuation towards the 2023 peak.

US data --> USD/JPY

Meanwhile in the US, the Fed blackout period has started ahead of next week’s FOMC policy meeting. Therefore, with policymakers staying away from public speeches, the focus will fall on the calendar. It will be a busy week of data releases, including flash S&P Global business PMIs, new home sales, Q3 GDP growth figures and the core PCE inflation report.

Investors will need confirmation that the US economy is still well-positioned despite the high interest rates and as defense spending is set to increase significantly on the back of geopolitical threats in the Middle East. If the data embraces that narrative, USDJPY could jump above the 150 threshold with scope to reach the 2022 high of 151.93.