Forex News

According to a Reuters report, four sources familiar with the Bank of Japan’s (BoJ) thinking have cited that the central bank will leave interest rates steady and raise its inflation forecast in the October policy meeting. The report claims that the BoJ may slightly upgrade their inflation forecast for the fiscal year 2027 as rising oil prices continue to feed through to consumer prices.

Here is what you need to know on Tuesday, October 20:

The British Pound gathers strength against its major rivals early Tuesday following the upbeat labor market figures, while the US Dollar (USD) struggles to find demand as US Treasury bond yields fail to build on Monday's rebound. Later in the European session ZEW sentiment data for Germany and the Eurozone will be watched closely by market participants. In the second half of the day, the US economic calendar will feature Housing Starts, Building Permits and Pending Home Sales figures for September.

The UK's Office for National Statistics reported on Tuesday that the ILO Unemployment Rate declined to 4.7% in the three months to August from 4.9%. This print came in better than the market expectation of 4.9%. In this period, the Employment Change was 102K, compared to 67K previously, and the annual wage inflation, as measured by the change i the Average Earnings Excluding Bonus, rose to 3.7% from 3.6%. Following the employment data, GBP/USD gathered bullish momentum and was last seen trading near 1.3350, rising about 0.4% on the day. Reflecting the broad-based GBP strength, GBP/JPY gains about 0.2% and trades at ist highest level in a month at 211.20, while EUR/GBP loses 0.2% and trades near 0.8400.

After starting the day under modest bearish pressure, the US Dollar (USD) Index staged rebound and closed virtually unchanged on Monday, supported by the recovery seen in the US Treasury bond yields. Early Tuesday, the 10-year US yield retreats toward 5.1% and the USD Index stays in negative territory below 101.80.

EUR/USD struggled to gather recovery momentum despite the renrewed USD weakness and trades below 1.1250 in the European morning on Tuesday.

Euro volatility risk rises as ECB dilemma over France comes into focus

Analysts at Rabobank argue that the current turmoil in France leaves the Eurozone facing a stark policy dilemma. They frame the choice as a “whispered realpolitik binary” between “the European Central Bank (ECB) bailing France out if needed, at a cost to the Euro and the fury of Germany,” or refraining from support “at a cost to EU economic, political, and market stability.” Rabobank further questions whether “the ECB [could] bail everybody else out from French contagion and leave Paris to sort out its mess,” underscoring the potential for spillovers across the bloc. In their view, “whatever happens now, more volatility seems far more likely than a ‘reversion to mean’,” reinforcing the sense that markets will remain highly sensitive to any escalation in French risks and the ECB’s response.

During the early trading hours of the Asian session, the People’s Bank of China (PBOC), China's central bank, announced that it left its Loan Prime Rates (LPRs) unchanged, with the one-year and five-year LPRs holding steady at 3.00% and 3.50%, respectively.

USD/JPY stays on the back foot on Tuesday and declines toward 158.00 after closing in the green on Friday. Japanese Finance Minister (FM) Satsuki Katayama said on Tuesday that there are no decisions made on funding expected defense spending increase. Katayama added that the government will consider measures to ensure stable funding while focusing on fiscal sustainability.

USD/CAD declines for the fourth consecutive trading day on Tuesday and trades below 1.4100, losing about 0.2%. On Monday, the data from Canada showed that the Consumer Price Index increased by 0.1% on a monthly basis in September. This print followed the 0.1% decline recorded in August and came in below the market expectation of 0.2%.

Gold remained under modest bearish pressure on Monday as US yields rose and registered daily losses. The precious metal finds it difficult to attract buyers early Tuesday and trades below $4,150 amid a reescalation of geopolitical tensions in the Middle East.

Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Monday that Tehran has not yet completely closed the Strait of Hormuz and can expand the scope of the blockade to the Bab al-Mandeb Strait and the Suez Canal, Tehran Times reported.

Deutsche Bank strategists reports that US equities outperformed Europe, with the S&P 500 rising even as most constituents fell. The NASDAQ and Philadelphia semiconductor index led gains as the recent AI‑related selloff stabilised. This tech‑driven optimism pushed US Treasury yields higher, with real yields driving the move and markets pricing in slightly more Federal Reserve rate hikes into mid‑2027.

AI stabilisation lifts tech and yields

"The improvement was led by tech stocks, as the NASDAQ (+1.11%) had its best day in two weeks, and the Philly semiconductor index (+1.61%) finally ended a relentless run of 8 consecutive declines. So given the concentration of tech in the broader index, that actually helped the S&P 500 (+0.41%) to post a steady gain, even as almost two-thirds of components within the index lost ground on the day."

"That AI stabilisation also pushed US Treasury yields higher, as it countered fears about an AI-related slowdown. Indeed, that was clear from the fact that higher real yields drove the bulk of the rise in Treasury yields yesterday, rather than inflation breakevens. So Treasury yields saw a consistent rise across the curve, with the 2yr yield (+6.5bps) up to 4.77%, whilst the 10yr yield (+6.6bps) rose to 5.14%."

"The AI trade has reversed back again this morning with the KOSPI (-4.39%) leading the declines, dragged down by chip heavyweight SK hynix Inc. (-5.17%), which is on track for its lowest close since April. The Nikkei 225 (-1.08%) is also being weighed down by tech. Elsewhere, the Hang Seng (-0.95%) is also falling after reopening following a holiday, while China’s CSI 300 (-0.51%) is also soft."

"Additionally, the S&P/ASX 200 (-0.40%) is also edging lower with National Australia Bank (NAB) shares sliding around -3.0% after the lender announced restructuring charges and job cuts. Meanwhile, S&P 500 futures are up marginally (+0.06%), with Nasdaq 100 futures slipping (-0.20%) along with the overnight tech retreat. Stoxx (-0.60%) futures are continuing Europe's recent declines and 10yr USTs are -2.1bps lower standing at 5.12% as we go to print."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• USD/JPY nears 158.00 after another rejection at the 200-day SMA around 158.55.
• Fading hopes of back-to-back Fed rate hikes and concerns about AI overinvestment are hurting the USD this week.
• The pair remains range-bound, with key support around 157.50.

The US Dollar (USD) posts moderate losses against the Japanese Yen (JPY) on Tuesday after being capped again at the 200-day Simple Moving Average (SMA) at 158.57. The USD/JPY pair retreats to the 158.00 area, weighed by dwindling hopes of Federal Reserve (Fed) rate hikes and concerns about AI overinvestment, although it remains within recent ranges, above the 157.50 support area.

The US Dollar is suffering this week as investors come to terms with the fact that the US central bank will stand pat on rates at next week’s monetary policy meeting. The odds for a quarter-point rate hike have dropped to 17% from nearly 60% last week, according to data by the CME’s Fed Watch Tool, after some Fed officials affirmed that they need more time to assess the impact of September's hike.

Beyond that, the growing concerns about the profitability of the AI sector are putting additional pressure on the US Dollar. The Greenback has been boosted by a massive injection of foreign investment in the sector during the last 12 months, and it is rational to believe that it will suffer if investors start to doubt the future of the technology.

Technical Analysis: Sideways consolidation between 157.50 and 158.50

From a technical perspective, the pair remains looking for direction, with bulls capped below the 200-day simple moving average (SMA) at 158.57, and downside attempts contained above the 157.50 area. Indicators in the daily chart show a mildly constructive bias, yet with momentum fading.

The Relative Strength Index (14) is hovering in neutral territory, just above the key 50 level, while the Moving Average Convergence Divergence (MACD) remains marginally positive, all in all hinting at a market that lacks a clear bias.

On the topside, bulls would need to breach the mentioned 200-day SMA at 158.57 to expose the September 24 high, just above 159.00, ahead of September's peak around 160.40. Bears, on the contrary, remain contained above the October 8 and 15 lows at the mid-157.00s, which is closing the path towards the late-September lows, near 156.40 and the September 17 low, at 155.34.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

• Euro falls to near 0.8407 as strong UK job data strengthens British Pound.
• The UK ILO Unemployment Rate falls to 4.7% in three months ending August.
• French fiscal concerns extend across Eurozone nations.

The Euro (EUR) slides 0.2% to near 0.8407 against the British Pound (GBP), following the release of the United Kingdom (UK) labor market data for three months ending August. The labor market data has shown a significant improvement in job hiring and a decline in the jobless rate.

The data showed that employers hired 102K fresh workers, higher than 67K in quarter ending July. The ILO Unemployment Rate dropped to 4.7%, while it was expected to remain steady at 4.9%. This is the lowest jobless rate figure seen in over a year.

Average Earnings Excluding Bonuses, a key measure of wage growth, arrives at 3.7% Year-on-Year (YoY), higher than estimates and the previous reading of 3.6%. The wage growth measure including bonuses dropped to 3.7% YoY from expectations of 3.8% and the prior release of 3.9%.

Financial markets brace for more volatility in the British Pound as the UK Consumer Price Index (CPI) data for September is scheduled to be published on Wednesday.

Deutsche Bank sees UK inflation pushing higher and staying elevated into 2027

Economists at Deutsche Bank expect UK inflation to re-accelerate in the near term, projecting that September will mark “its highest rate all year,” with “headline CPI rising to 3.49% y-o-y, with core CPI pushing to 2.74% y-o-y.” They also look for “Services CPI, we expect, will also rise, picking up pace to 3.71% y-o-y on stronger base effects.”

Looking beyond the immediate print, Deutsche Bank warns that “price pressures” are likely to “increase further,” noting that “energy prices remain on an ascent” and that “lower harvests have already starting to show up in food cost price data.” Against this backdrop, the bank says “our updated projections see CPI taking another step up, with 2027 CPI averaging 3.7% (previously, 3.5%) from 3.2% this year,” while “headline RPI, we expect, will rise from 3.7% y-o-y to 5.2% (previously, 4.8%).”

The economists acknowledge that “our projections sit broadly above the Bank’s forecasts with the exception of two categories: core goods CPI and food & non-alcoholic beverages CPI,” and indicate they “break down how our projections look relative to the Bank of England’s below.” Summing up the trajectory, Deutsche Bank concludes: “We see headline CPI still making its way higher from here, peaking at 4.3% y-o-y in February next year. For the full year now, we see headline CPI averaging 3.2% y-o-y in 2026 and rising to 3.8% y-o-y next year (previous: 3.5%).”

Meanwhile, the Euro remains under pressure due to Russia-Ukraine tensions and heightened French fiscal worries.

French turmoil fans bond contagion and Euro stress

Analysts at Deutsche Bank highlight how the latest bout of French political turmoil has rippled across European markets, noting that “those market concerns around French debt cascaded across other countries and asset classes too.” They point out that “the Italian 10yr spread over bunds was also up +4.7bps on the day to 111bps, whilst Spain’s was up +1.2bps to 62bps.” Equity markets were similarly hit, with “the STOXX Banks index (-2.07%)” dropping to a four‑month low and “even bigger declines for the French banks, including Société Générale (-3.41%), Crédit Agricole (-2.64%) and BNP Paribas (-2.48%).” In FX, Deutsche Bank adds that “all that caused fresh pressure for the Euro itself, which weakened -0.23% against the US Dollar to close at $1.1213.”

Rabobank’s RaboResearch team characterises the fixed income reaction as “an ugly bond reaction to the ugly protests and looting in France (and Belgium and Italy, following earlier peaceful protests in Spain and Portugal) with 10-year French yields +13bps, Italian +8bps, and German +3bps.” They stress that “even if we only focus on fiscal metrics, French 10-year borrowing costs are now half a rate hike higher than Friday,” underscoring how quickly funding conditions have tightened.

Looking ahead, Rabobank frames what it calls “the hypothetical whispered realpolitik binary” facing policymakers as a choice “between the ECB bailing France out if needed, at a cost to the Euro and the fury of Germany, and not doing so at a cost to EU economic, political, and market stability.” The bank also raises the question: “But could the ECB bail everybody else out from French contagion and leave Paris to sort out its mess?” Against that backdrop, Rabobank concludes that “whatever happens now, more volatility seems far more likely than a ‘reversion to mean’.”

Chris Turner at ING highlights that EUR/USD is finding some support even as French bond spreads widen, with markets focused on France’s 2027 budget process and a looming Moody’s review. Despite French fiscal stress and high energy prices, Eurozone business optimism has held up. ING sees consolidation after September’s drop, but judges the case for a sustained EUR/USD recovery as weak.

French spreads limit Euro upside

"EUR/USD is finding a little support even as French debt spreads widen. The French news should remain euro-bearish, as today the lower house votes on the revenue side of the proposed 2027 budget. Both the left and the right have attached numerous amendments to the original bill, meaning that even if it passes, markets are unlikely to welcome it."

"And the budget bill bouncing between the lower and upper houses into early December seems to be the base case. This week French sovereign debt also has to cope with a Moody's rating review on Friday. Here Moody's could play catch-up with the other agencies in cutting France to a single A-rated issuer."

"The move is expected; investors are underweight French debt, but there is still little concern that the loss of the final AA rating from the big three agencies could lead to some forced selling."

"Expect EUR/USD to remain on 'OAT-watch' today. While a period of consolidation/correction looks necessary after a big fall in September, the case for a EUR/USD recovery remains weak. A move to 1.1180 looks as likely as a rally to 1.1270."

"Despite French budget stress and high energy prices, eurozone business optimism has been holding up surprisingly well. That will be tested today with the release of the German ZEW index and on Friday with the flash PMIs across the region. These are all expected to edge a little lower, but probably not enough to dent the euro."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

United Overseas Bank’s (UOB) Quek Ser Leang reports GBP/USD eased to 1.3304 but remains supported after last week’s surge to 1.3371. Intraday, the Pound is expected to consolidate between 1.3285 and 1.3335 as momentum indicators flatten. On a 1–3 week horizon, UOB still sees scope for a push toward 1.3405, provided GBP holds above strong support at 1.3260.

Pound-Dollar consolidates with bullish bias

"24-HOUR VIEW: GBP soared to a high of 1.3371 last Friday and then pulled back. Yesterday, when GBP was at 1.3325, we indicated the following: “Upward momentum has slowed with the pullback. This, combined with overbought conditions, suggests that instead of continuing to rise, GBP is more likely to range-trade between 1.3290 and 1.3360.” We were not wrong, even though GBP traded within a narrower range of 1.3300/1.3348. There has been no shift in momentum indicators, and we continue to expect GBP to range-trade today, most likely between 1.3285 and 1.3335."

"1-3 WEEKS VIEW: Last Friday (16 Oct, spot at 1.3270), we indicated that GBP “could edge higher toward 1.3315.” After GBP broke above 1.3315 and soared to 1.3371, we highlighted yesterday (19 Oct, spot at 1.3325) that “upward momentum continues to increase, and GBP could rise toward 1.3405 next.” To keep the momentum going, GBP must hold above the ‘strong support’ at 1.3260 (no change in level)"

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• USD/CAD weakens to near 1.4080 in Tuesday’s early European session.
• The pair maintains a constructive outlook above the key 100-day SMA.
• The first upside barrier emerges at 1.4129; the initial support level is seen at 1.4040.

The USD/CAD pair trades in negative territory around 1.4080 during the early European trading hours on Tuesday. The Canadian Dollar (CAD) attracts some buyers against the US Dollar (USD) as crude oil prices elevated.

Iran’s Islamic Revolutionary Guard Corps (IRGC) said on Monday that Tehran has not yet completely closed the Strait of Hormuz and can expand the scope of the blockade to the Bab al-Mandeb Strait and the Suez Canal.

Meanwhile, the Houthis claimed Monday to have attacked King Khalid International Airport in Riyadh, Saudi Aramco facilities in Yanbu on the Red Sea Coast and the Shaybah oilfield and Saudi naval forces. It is worth noting that Canada is a major oil-exporting country, and high crude oil prices generally have a positive impact on the Loonie.

Data released by Statistics Canada earlier this week revealed that headline Consumer Price Index (CPI) rose by 0.1% month-on-month (MoM) in September, compared to a decline of 0.1% in August. This figure came in softer than the expected rise of 0.2%. On an annual basis, the CPI inflation climbed to 3.1% in September from 3.0% in the previous reading, below the market consensus of 3.2%.

Money markets are betting the Bank of Canada (BoC) will hold its rate at 2.25% on October 28, although they are pricing in a 25-basis-point hike in December, according to Reuters.

BoC walks tightrope as softer data clash with inflation risks

Economists at Royal Bank of Canada argue that the Bank of Canada is still facing “an uncomfortable balance” as it weighs a softening domestic backdrop against lingering price pressures. They note that “softer labour-market data and higher fixed borrowing costs give policymakers room to remain patient,” supporting their “base-case forecast” that “the Bank will hold the overnight rate unchanged through the remainder of 2026 before gradually raising rates in 2027.”

At the same time, RBC cautions that policymakers “remain alert to the risk that persistently elevated oil prices lift inflation expectations or generate broader second-round price pressures,” a dynamic that complicates the case for prolonged steady policy. Moreover, they highlight that “recent communication from the Bank of Canada and Governor Macklem are denoting more urgency than the data to date might suggest and add to the risk the Bank chooses to move preemptively,” underscoring the potential for a shift away from the current wait-and-see stance.

Technical Analysis: USD/CAD keeps a mildly bullish above the 100-day SMA

In the daily chart, USD/CAD holds a mildly bullish near-term bias as it remains above the 100-day simple moving average (SMA), which now underpins the broader uptrend. Price is pressing into the lower line of the Bollinger Bands while the middle band stays overhead, suggesting upside potential is intact but facing nearby supply. The Relative Strength Index (RSI) at 44 keeps momentum in a neutral-to-soft zone, hinting that bulls may need fresh catalysts to extend gains toward the upper band.

On the topside, immediate resistance level emerges at the July 28 high of 1.4129, en route to the middle Bollinger band at 1.4195, acting as the next hurdle. Further north, the next hurdle to watch is the upper boundary of Bollinber band near 1.4310. 

On the downside, the key support level is located at the 100-day SMA at 1.4040. A daily close below this level would weaken the current constructive tone and open the door to the September 18 low of 1.3976, followed by the August 31 high of 1.3912. 

(The technical analysis of this story was written with the help of an AI tool. Know more.)