Risk appetite weighs on the Dollar, BoJ decision next

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The key event during the Asian session will be the monetary policy decision from the Bank of Japan. Japan will also release Industrial Production, Unemployment Rate, and Retail Trade data. The New Zealand ANZ Business Confidence report is due, as well as Australia’s Private Sector Credit. Chinese NBS PMI figures are scheduled for release. Later in the day, Eurostat will release preliminary inflation data for October. The FOMC meeting kicks off.

Here is what you need to know on Tuesday, October 31:

A busy Tuesday lies ahead in the middle of a loaded week with central bank meetings and key economic data. Risk appetite boosted Wall Street on Monday, with the main stock indices holding onto gains of more than 1%.

The risk-on sentiment weighed on the US Dollar, leading to a pullback. The US Dollar Index fell 0.45% to 106.10, experiencing its worst day in a week. US Treasury yields made no significant moves, with the 10-year yield hovering around 4.86%.

The FOMC meeting kicks off on Tuesday. The Federal Reserve (Fed) is expected to keep interest rates unchanged despite robust US economic data and inflation remaining above target. Rates have risen significantly in recent months, and the upward pressure on long-term Treasury yields has contributed to a tightening monetary policy stance. The debate now centres around how long the Fed will need to maintain higher interest rates.

On Tuesday, the US Q3 Employment Cost Index is due. On Wednesday, will be the ADP private employment and on Friday Nonfarm Payrolls. Eurostat will release the Eurozone Harmonized Index of Consumer Prices and Q3 Gross Domestic Product. The data bodes well after Germany reported a decline in the annual inflation rate from 4.5% to 3.8%, which is below the market consensus of 4%. Regarding GDP, it contracted by 0.1%, which was better than the market consensus contraction of 0.3% (Q2). More data from Germany is due on Tuesday with Retail Sales. 

EUR/USD has risen above 1.0600 and is approaching the resistance area around 1.0630. The pair maintains a modest bullish tone. EUR/GBP posted its highest daily close since May, trading above 0.8700.
The Bank of England (BoE) will announce its decision on Thursday, and markets anticipate another dovish hold. Such expectations have weighed on the British pound. GBP/USD rose on Monday, supported by a weaker US Dollar, moving away from the monthly lows and inching towards the 20-day Simple Moving Average (SMA), which is currently at 1.2170.

The Japanese Yen strengthened across the board after Nikkei reported that the Bank of Japan (BoJ) may allow long-term yields to rise above 1%. USD/JPY dropped below 149.00 and then stabilized around that level. It appears vulnerable in the near term.
The BoJ will announce its decision on Tuesday. Some analysts consider that the central bank will adjust its Yield Curve Control policy by allowing the 10-year bond yield to rise to 1.5%, up from the current level of 1%. Market participants will also closely watch for any updates on the macroeconomic forecast provided by the BoJ. In terms of economic data, Japan is set to release Industrial Production, Unemployment Rate, and Trade data on Tuesday.

BoJ Preview: Forecasts from 10 major banks, no change to policy, another tweak to YCC?

China’s Manufacturing PMI for October will be released on Tuesday, and it is expected to remain in expansionary territory for the second consecutive month at a reading of 50.2. The Non-Manufacturing PMI is expected to show a modest improvement, rising from 51.7 to 51.8.

The Australian Dollar (AUD) continues to perform well, supported by positive Australian data. On Monday, retail sales for September exceeded expectations, adding to the argument for another rate hike from the Reserve Bank of Australia (RBA) next week. Private sector credit data is scheduled to be released on Tuesday. AUD/USD has risen for the third consecutive day, approaching the crucial 0.6400 area. AUD/NZD reached 1.0929, its highest level since June.

NZD/USD had its best day in weeks, rising by less than 50 pips. The pair climbed from 0.5800 to the 0.5850 area. The overall trend is down, but it appears to be consolidating. The ANZ Business Confidence survey is due on Tuesday, followed by the New Zealand employment report on Wednesday.

Gold retreated after surging on Friday and is trading slightly below $2,000. It has been unable to benefit from Monday’s steady yields and risk appetite. Silver initially surged towards October highs but later trimmed its gains, settling at $23.30.