• UK GDP in focus this week; pound could significantly benefit from a strong print

• RBA meeting and Chinese data could push aussie even higher against the US dollar

• USDJPY could break below its upward trending channel if Japanese data improve

UK GDP Q3 print -> EURGBP

The Bank of England kept its main bank rate unchanged at last week’s meeting despite the inflation rate remaining at a very high level. Bailey et al kept the door open to further tightening if needed – 3 members actually voted for a 25bps rate move at this meeting – but concerns about the growth outlook appear to be multiplying. In this context, on Friday we will get the preliminary GDP print for the third quarter of 2023. Market expectations point to a negative figure with strong downside risk.

A weak set of data releases this week, especially Friday’s GDP print, could accelerate the current rally in euro-pound, potentially allowing euro bulls to test the 0.8794-0.8815 area. On the flip side, a plethora of upside surprises this week could help the pound bulls recover part of their recent losses. A strong move below the busy 0.8615-0.8647 looks plausible.

RBA meeting and Chinese data -> AUDUSD

The Reserve Bank of Australia will wrap up the current round of central bank meetings. There are very strong expectations, especially from analysts, for a 25bps rate hike from the RBA on Tuesday after pausing for three consecutive meetings. The market is assigning a more modest probability for a rate hike announcement, potentially opening the door for a surprise reaction in the FX market if the RBA indeed decides to hike and maintains its hawkish rhetoric.

China is another key driver of the aussie, and there is a busy data schedule this week. The key releases will come out on Thursday when the October CPI is expected to show a negative yearly change, raising concerns about the level of domestic consumer demand.

The aussie has been rallying against the US dollar since testing the November 3, 2022 low at 0.6271 in late October, partly due to expectations of an RBA rate hike. It is now trading at a 3-month high. A combination of a hawkish rate hike from the RBA and an upside surprise in Chinese inflation could accelerate the current upleg, potentially towards the 200-day simple moving average (SMA) at 0.6609.

On the other hand, a dovish rate hike by RBA, or even a decision to pause, along with weaker Chinese data will probably put a dent in the current bullish sentiment in aussie-dollar. A move towards the 50-day SMA could take place, partly reversing the recent bullish move.

Japanese earnings data and BoJ minutes -> USDJPY

With the market feeling somewhat disappointed by the recent Bank of Japan meeting and its change in the yield curve control mechanism, the focus now turns to the weekly earnings data and the first draft of minutes from the aforementioned gathering. BoJ members have been quite vocal about the importance of earnings growth in their attempt to start curtailing the current very accommodative BoJ stance. Recent earnings prints have not been optimistic but maybe this trend will change this week.

In addition, the Summary of Opinions published on Thursday could offer more insight into the internal discussion that led to the YCC framework change and the overall assessment of the current state of the Japanese economy from the policy board.

Amidst these developments and with the market digesting the recent Fed meeting, US dollar-yen is testing the lower boundary of its upward trending channel. Stronger earnings data and hawkish minutes could result in a repeat of the July downwards breakout. On the flip side, weaker data releases and the dovish minutes could potentially allow the dollar-yen pair to retest its recent high