Talking Points:

- The Japanese Yen, like the Swiss Franc, continues to track broad risk trends vis-à-vis US Treasury yields.

- The BOE rate hike this week is largely priced-in, meaning forward guidance on the future path of rates will be the determining factor for the British Pound.

- The FOMC meeting this week will be a placeholder before the December rate hike – no surprise given the lack of press conference or a new summary of economic projections.

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.

10/31 Tuesday | --:-- GMT | Bank of Japan Rate Decision

The monthly Bank of Japan Monetary Policy Statement is expected to see rates remain at -0.10% with the 10-year JGB yield target unchanged around 0%. In order to boost inflation to a stable, target, level of 2%, the BOJ controls short-term and long-term interest rates via market intervention, while the central bank has also committed itself to increasing the monetary base until inflation hits target. At the end of the month, the central bank announces which government bond issues it will buy in the next month, with approximate purchase amounts and purchase dates.

Consumer price inflation in Japan rose by +0.7% in September 2017, in-line with market expectations but still well-below the BOJ’s +2% target. It’s worth pointing out that of the +0.7% gain in prices, +0.5% can be attributed to recent gains in energy (+7.6% y/y). It’s also worth noting that as of the end of September 2017, the BOJ owned approximately 45% of all outstanding Japanese government debt. Expect the BOJ to retain the mantle of ‘most dovish G7 central bank’ for the foreseeable future.

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

10/31 Tuesday | 08:30 GMT | EUR Euro-Zone Consumer Price Index (OCT A)

Inflation remains low in the Euro-Zone, despite near-term advances on the headline CPI figures. European Central Bank President Mario Draghi, at the ECB policy meeting last week, noted that an "ample degree of stimulus is still needed," pointing to "domestic price pressures [remaining] muted" and that "core inflation has yet to show convincing upward trend" to justify the ECB's patience on rates. Incoming inflation figures point to price pressures unchanged at +1.5% y/y in October, perhaps enough to prevent the Euro from falling much more sharply but not enough to spark a complete turnaround.

Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD

11/01 Wednesday | 18:00 GMT | USD Federal Reserve Rate Decision

The Federal Reserve’s October policy statement should reaffirm the desire to raise rates by the end of the year, although that much information is already priced-in to rates. Given that it is a non-press conference, non-summary of economic projections (SEP) meeting, markets are pricing a 0% chance of a rate move this week, and instead focusing on December, when the odds of a Fed rate hike are now above 93%; prior to the September FOMC meeting, the implied probability was only 45%. Barring a new perspective that convinces market participants that current pricing on 2018 rates hike is wrong (market is pricing in one, Fed says three), this particular FOMC meeting may yield little for the US Dollar.

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

11/02 Thursday | 11:00 GMT | GBP Bank of England Rate Decision

Super Thursday will see Bank of England latest monetary policy announcement and the MPC Quarterly Inflation Report. All UK policy measures are expected to remain unchanged, while the QIR is expected to see near-term growth expectations and inflation forecasts hold steady. The BOE will join the shift among central banks to a more hawkish stance, with rates markets pricing in almost a 100% chance of a 25-bps hike this Thursday. The most recent inflation report showed that price pressures increased from August to September (+2.9% to +3.9% y/y on the headline), and now that the base effect of the weaker British Pound thanks to Brexit has been eliminated, it seem like inflation won’t push much higher than +3% y/y in the near future. It is very possible, if not likely, that this BOE rate hike is ‘one-and-done.’ Guidance on the future path of rates will be the key factor for the British Pound.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

11/03 Friday | 12:30 GMT | USD Change in Nonfarm Payrolls and Unemployment Rate (OCT)

The key issue surrounding the September US Nonfarm Payrolls report is whether or not the US labor market will remain strong enough to justify a more aggressive pace of Fed tightening in 2018. Current expectations for the data are modest, with the Unemployment Rate expected to hold at 4.2%, and the headline jobs figure to come in at +310K – a clear ‘give-back’ after Hurricanes Harvey and Irma distorted the August payroll figures (producing the first negative NFP in seven years). The trend of +200K jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind.

In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view. And, in late-February 2016, she noted that the economy can maintain its current unemployment rate by producing between 75K and 125K jobs per month. By the Atlanta Fed Jobs Growth Calculator, assuming a 4.3% longer term unemployment rate, the economy only needs +112K job growth per month to sustain that level through the end of 2017.

Read more: After ECB Policy Meeting, Euro Adrift Looking for a Life Boat

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

To contact Christopher, email him at cvecchio@dailyfx.com.

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