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Talking Points:

- Speech by BOJ Governor Kuroda this week should highlight the stark contrast between the BOJ and other major central banks: the BOJ remains far-and-away the most dovish.

- The September FOMC minutes due on Wednesday will likely confirm the Fed’s intention to raise rates again before the year is out.

- US consumption and inflation data at the end of the week will help shape expectations for Q3’17 US GDP estimates.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

10/10 Tuesday | 00:30 GMT | JPY BOJ Governor Kuroda Speaks at Branch Managers’ Meeting

Amidst the flurry of central banks – the Bank of England, the European Central Bank, and the Federal Reserve – posturing that they will be tightening policy to various degrees, the Bank of Japan is perhaps one of the two major central banks (the other being the Swiss National Bank) that is clearly in a dovish policy stance. As inflation remains persistently below the BOJ’s medium-term +2% target, there is little reason to believe that Governor Kuroda will signal anything other than a continued push forward with extraordinary loose monetary policy.

Pairs to Watch: AUD/JPY, USD/JPY, Gold

10/11 Wednesday | 18:00 GMT | USD September FOMC Meeting Minutes

The Federal Reserve’s September policy meeting was a turning point for the US Dollar: the DXY Index established a bullish outside engulfing bar and pierced its daily 21-EMA for the first time since June 22. But the technical reversal was not without a fundamental driver. The FOMC’s decision to signal to markets that it intended on fulfilling its preset course for interest rates – as laid out initially in the December 2016 summary of economic projections (SEP) – by raising rates a total of three times in 2017 and another three times in 2018 caught market participants off guard: there was only a 45% chance of another rate hike by the end of the year; and only two hikes were priced in for 2018. Now, rate hike expectations have firmed up sharply (83% chance of a hike before the year is out, and two-and-a-half hikes are priced in for next year) – look for the FOMC minutes to reinforce this development that has carried the US Dollar higher over the past three weeks.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

10/13 Friday | 12:30 GMT | USD Advance Retail Sales & Consumer Price Index (SEP)

Consumption is the most important part of the US economy, generating nearly 70% of the headline GDP figure. The best monthly insight we have into consumption trends in the US might arguably be the Advance Retail Sales report. In September, consumption increased, according to a Bloomberg News survey, with the headline Advance Retail Sales set to increase by +1.5% (m/m). The Retail Sales Control Group, the input used to calculate GDP, is due in at +0.4% from -0.2% (m/m).

According to a Bloomberg News survey, US consumer prices were marginally higher on a monthly-basis in September, due in at +0.6% from +0.4% (m/m) and +2.3% from +1.9% (y/y). The core readings should be similar, at +0.2% unch (m/m), and at +1.8% from +1.7% (y/y). These figures aggregately have started to push back towards the Fed’s medium-term target, and would represent removing the biggest obstacle to the Fed following through on its plan to raise rates one more time before the year is over. Any impact on the US Dollar will be vis-à-vis the glide path pricing channel.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

Read more: What Does the Fourth Quarter Hold for the Dollar, Equities, Oil and Other Key Markets?

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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