Forex & Currency Watch — 2026-10-28

Market Snapshot

The major currency pairs are trading in tight, cautious ranges as traders await major policy announcements. The US Dollar is showing relative strength against most of its G10 counterparts.

Top Movers

• USD/JPY (Winner): The pair saw a 0.35% daily gain. The primary driver was a steady rebound in US tech stocks, which reduced the yen's appeal as a safe-haven asset.
• EUR/USD (Loser): The pair dropped 0.20% on the day. The weakness is driven by an overall resurgence in US dollar strength and widespread caution ahead of the ECB's upcoming monetary policy decision.
• GBP/USD (Loser): Sterling nudged lower against the dollar, slipping 0.10% on Tuesday. The pound is struggling to maintain its footing as the dollar broadly strengthens ahead of the Fed meeting.

What Moved the Tape

• US Equity Market Rebound: A strong recovery in tech stocks and an easing of AI-related market jitters significantly reduced risk-off flows. This directly pressured safe-haven currencies like the Japanese Yen, pushing USD/JPY higher.
• Falling Oil and Yields: Crude oil prices slid on October 26 due to diplomatic developments involving Iran. This drop in oil prices initially eased US Treasury yields, temporarily weighing on the dollar, though the dollar ultimately outperformed all major currencies on the day.
• Geopolitical & Macro Caution: Markets are holding back from aggressive directional bets ahead of the "central bank bonanza." The anticipation of the Fed's policy decision—the most critical catalyst of the week—has kept the DXY firmly elevated and suppressed the Euro and Pound.
• French Credit Rating Stability: The Euro's downside was slightly cushioned on Monday after Moody's left France's credit rating unchanged on Friday, preventing a wider break lower in EUR/USD.

Central Bank Watch

• Federal Reserve (Fed): The Fed is the absolute center of attention this week. Expectations of a monetary policy pause by the Federal Reserve have been a major theme, keeping the Dollar Index largely subdued last week but now positioning for a potential breakout.
• European Central Bank (ECB): The ECB has a monetary policy decision scheduled this week. Traders are highly cautious, and the Euro has suffered a nearly 0.5% decline over the past three sessions as the market braces for the announcement.
• Bank of Japan (BOJ): Markets are currently awaiting the BOJ's policy decisions, with the Yen slipping steadily as the central bank's next moves remain a key area of uncertainty for traders.

Emerging Markets & Asia FX

• Australian Dollar (AUD): Asset managers have taken their short positions on the Australian Dollar to a record high. This aggressive risk-off positioning has weighed heavily on the AUD/USD pair.
• Brazilian Real (BRL): The Real is facing immediate pressure. The political landscape in Brazil shifted after Lula suffered a notable electoral upset, which jolted the Brazilian market and caused the Real to weaken, even as broader emerging markets held relatively steady.
• Chinese Yuan (CNY): The Yuan remains supported by favorable rate differentials and a strong current account surplus. While growth concerns linger, China's strategic tariff advantage continues to provide a floor for the CNY against the Dollar.
• Korean Won (KRW) & Indian Rupee (INR): Asian emerging market FX continues to attract attention, with the Korean Won and Indian Rupee drawing significant inflows from carry trades, which have hit their best start in three years.

Strategist Takes

• Michael Boutros (Sr. Technical Strategist, forex.com): Boutros notes that the pre-FOMC setup is critical. The US Dollar's strength remains very much in play, with the DXY testing key technical levels as it prepares for the Fed decision.
• Dan Tobon (Head of G10 FX Strategy, Citi): Tobon maintains a bullish stance on the dollar, stating, "We are dollar bulls in a world of dollar bears right now." He sees the dollar strengthening at least through the third quarter, primarily against the Euro, Canadian Dollar, and Sterling, despite the threat to Fed independence.

What to Watch Next

• Federal Reserve Policy Decision: The most impactful event of the week. A shift in rate-path expectations will immediately reprice the DXY, EUR/USD, and GBP/USD.
• ECB Policy Decision: Scheduled for this week. The Euro has already begun sliding in anticipation; a dovish surprise could test EUR/USD support levels further.
• US Mid-Term Elections: Scheduled for next week. Political uncertainty is expected to inject volatility into USD pairs, particularly if markets are expecting a divided government.
• US CPI Data Release: Scheduled for the week following the elections. Inflation data will heavily influence the Fed's next moves and is highly sensitive for the DXY and USD/JPY.

Reader Action Items

• Watch the EUR/USD Support: EUR/USD is currently testing critical support at 1.1113. A break below this level ahead of the ECB decision could signal a deeper downward trend.
• Monitor DXY Resistance: The Dollar Index is eyeing the 102.59 resistance level. A confirmed break above this threshold, driven by Fed expectations, could trigger a broader dollar rally across all major pairs.
• Avoid Aggressive Risk-Off Bets: With US tech stocks rebounding and AI jitters easing, traditional safe-haven plays like the Japanese Yen may continue to underperform. Monitor US equity markets for early signals of USD/JPY direction.