The final week of October promises to be the busiest yet. In a single five-day span, the most important events for EUR/USD are concentrated: meetings of the Federal Reserve and the European Central Bank, the publication of the core PCE index (one of the Fed's key inflation gauges), and first estimates of Q3 GDP for the US and the euro area. Secondary releases will complement the fundamental picture — IFO indices, the US consumer-confidence indicator, durable-goods orders, and German inflation.
After a lengthy period of range trading, market participants will finally have an opportunity to decide EUR/USD's direction.
Fed and ECBThe main intrigue of the Fed meeting, whose results will be announced on October 28, lies in the tone of the accompanying statement and Kevin Warsh's rhetoric. According to the latest Reuters survey, 94 of 100 economists expect the rate to be kept in the 3.75%–4.00% range. Other market models point to the same conclusion: according to the CME FedWatch tool, the probability of a hold is currently about 90%.
This suggests that the pause itself will not be a standalone fundamental driver. Market participants will care far more about signals from the central bank about the prospects for further tightening monetary policy.
Again, the same tool assesses the probability of a 25-bp hike at the December meeting at almost 70%. Traders also price in a roughly 10% chance of a more decisive move—a 50-bp hike. Hawkish signals are expected by analysts at Danske Bank, among others; they forecast additional rate increases in March and even allow that two to three Fed officials could vote for immediate tightening at the October meeting.
Overall, many analysts believe holding rates at current levels will almost certainly be accompanied by hawkish signals. I consider that scenario the most likely. Weak nonfarm payrolls force the Fed to pause this month, but the acceleration of overall and — crucially — core inflation does not allow the Fed to relax vigilance or rule out further tightening. The question is only how quickly the central bank will raise rates. Therefore, the dollar's reaction will largely depend on the statement's hawkishness and Kevin Warsh's rhetoric.
The Fed chair will likely acknowledge cooling in hiring while emphasizing inflation problems and stressing the risk that price pressures could become entrenched. This is the most probable outcome given the acceleration in core CPI and PPI in September (i.e., the problem has already gone beyond direct energy-price effects).
However, merely repeating previous wording may not be enough to trigger a dollar rally: the greenback needs new information that strengthens already priced expectations (for example, clearer prospects of further hikes early next year).
As for the European Central Bank, which will deliver its verdict on October 29, the ECB is in a somewhat different position. A hold is also expected there, but the accompanying rhetoric may be less hawkish and more cautious.
Headline inflation in the euro area reached 3.8% in September, while core inflation was 2.5%. That suggests the energy shock's transmission to other categories of goods and services has been more limited so far than in the U.S. At the same time, weak ZEW readings and October PMIs reminded the market of the fragility of Europe's recovery. In particular, the euro-area composite PMI fell to 51.9, and France's PMI dropped to 48.4 (in contraction territory).
Therefore, in my view, Christine Lagarde will, on the one hand, keep the door open to further rate hikes, but on the other, will emphasize data dependence (and not only regarding inflation). As is well known, expensive energy both pushes up prices and dampens demand, increasing stagflation risk. That combination calls for more cautious ECB rhetoric compared with the Fed — with all the attendant implications for EUR/USD.
GDP and core PCEThe most important macro releases next week are preliminary Q3 GDP figures for the US and the euro area.
Preliminary euro-area GDP will be published on October 30. The consensus forecast expects the currency bloc's economy to grow just 0.2% quarter-on-quarter in Q3. I expect the outcome to be close to the forecast, although weakness in the French economy raises the risk of slower growth.
US GDP data will be released a day earlier, on October 29. Consensus projects US GDP to accelerate to 3.0% year-on-year after 2.2% in the previous quarter. Analyst estimates differ somewhat — for example, economists at U.S. Bank forecast 3.3% growth, while Continuum Economics expects a more modest 2.8%.
In my view, the scale tips toward exceeding the 3% threshold. The main argument for this view is the resilience of consumer demand (for example, nominal consumer spending rose 0.9% in August). Most analysts expect real consumption to increase by 3.4% year-on-year in Q3. Additional support for the US economy comes from investments in AI infrastructure. However, a flip side may affect the headline number: a large share of the equipment is imported, which raises imports and weighs on net-exports' contribution to GDP. Therefore, strong domestic demand does not automatically translate into an equally impressive headline print. Still, if domestic demand remains strong, the market may focus on that factor and be more forgiving of a less-impressive headline figure.
US GDP will be released together with the September core PCE index. Forecasts call for this inflation gauge to accelerate to 3.1% year-on-year from 3.0% in August. Month-on-month, core PCE is also expected to rise to 0.3% from 0.2%. That means the inflation release could complement a strong GDP report with another argument for further Fed tightening.
Some signs already suggest core PCE may accelerate. First, core CPI rose, and air-transport prices increased in the PPI report — some PPI components feed into PCE. In addition, the Cleveland Fed's model implies a monthly rise in core PCE of about 0.28%, which rounds to the 0.3% forecast. At the same time, muted dynamics in some medical and insurance components could limit the overall result. Therefore, the most likely scenario is a moderate (consensus) acceleration in core PCE.
For the dollar, such an outcome would still be favorable — primarily in the context of the December Fed meeting. The report comes after the October meeting, but it could reinforce hawkish Fed rhetoric and strengthen expectations for a year-end rate hike. Beating the forecast would further show that inflationary pressure persists beyond the energy sector.
Secondary releasesSecondary macroeconomic reports can also play a supporting role. On Monday, the IFO is expected at 90.1 after 89.9: the breakdown of expectations and current conditions will help assess the resilience of German business. On Friday, German HICP is forecast to slow to 3.1% (from 3.3% previously), which will help refine euro-area inflation risks against the backdrop of ECB signals already announced.
On Tuesday, the U.S. Conference Board consumer-confidence index will be released and is expected to ease to 81.5 (from 81.9). The release will shed light on American consumers' sentiment and their willingness to spend. Durable-goods orders will be published the same day. They are expected to rise 0.7% after a weak 0.2% gain the prior month. Pay particular attention to the ex-transportation components, which will help assess the resilience of investment demand.
Instead of conclusionsFor three weeks, EUR/USD has traded mostly in the 1.1180–1.1250 range. The next five days will likely break this balance. In my view, a downside breakout is more likely. A hawkish Fed pause, continued strength in the U.S. economy, and accelerating core PCE could give the dollar the support it needs, especially against a more cautious ECB tone. If that scenario materializes, the pair will clearly settle below 1.1180. In that case, the next target for the decline would be 1.1130 (Kijun-sen on the MN chart) and, over time, 1.1050 (the lower Bollinger-Band on the same timeframe).