October 2026: Central bank policy divergence and forex technical outlook

• Central bank divergence: The Federal Reserve maintains a hawkish stance following its September rate hike¹, supporting USD strength, while the Bank of Japan faces growing hawkish consensus ahead of its October meeting², and the Reserve Bank of New Zealand balances inflation pressures against sluggish domestic growth³.
  
• US dollar resilience: Sustained US dollar strength across major currency pairs is supported by persistent energy price shocks and resilient consumer spending⁵, reinforcing expectations for prolonged higher interest rates.
  
• Technical outlook: Major pairs are testing critical structural levels, with EUR/USD probing confluence support in the 1.1250–1.1396 zone, JPY pairs (EUR/JPY and CAD/JPY) facing heavy confluence resistance below key moving averages, and USD/CAD challenging resistance at 1.4237 within a rising wedge.

As October 2026 comes to a close, financial markets are closely watching major central banks as they navigate critical monetary policy decisions amid persistent macroeconomic uncertainties. Key central bank announcements scheduled for late October and early November highlight a growing potential for policy divergence, with the Federal Reserve, the Bank of Japan, and the Reserve Bank of New Zealand balancing inflation pressures against domestic growth risks.

On September 16th, the Federal Reserve raised rates by 25 bps to 3.75%–4.00%, its first hike since 2023. Fed Chairman Kevin Warsh signaled a hawkish stance, noting persistent inflation above the 2% target¹ and keeping the door open for further tightening. The decision pushed Treasury yields higher and pressured major equity indices. Expectations of higher rates supported the US dollar against other currencies, pushing major currencies down to critical lows not seen since mid-2025, as seen in EUR/USD.

The release of the latest U.S. Personal Consumption Expenditures (PCE) report on September 30th - showing headline inflation holding at 3.4% year-over-year and core PCE slowing to a modest 0.2% monthly pace⁴ - triggered a mixed reaction across currency markets. Although the cooler-than-expected underlying inflation figures initially sparked short-term downward pressure on Treasury yields, the U.S. dollar resiliently maintained an upward trajectory, extending its weekly gains against major currencies. The greenback’s strength was potentially bolstered by persistent energy price shocks and strong consumer demand⁵, which kept alive expectations that the Federal Reserve will retain a hawkish stance and keep interest rates higher for longer.

The Bank of Japan (BoJ) heads into its October 29–30 Monetary Policy Meeting under heightened scrutiny as market participants weigh the potential for further rate hikes following September’s decision to raise the policy rate by 25 basis points to 1.25%². With underlying inflation hovering near the central bank’s 2% target⁶, recently released BoJ opinions signal a growing hawkish consensus among policymakers, with several members advocating for preemptive policy tightening² to prevent price pressures from overshooting. Alongside the interest rate announcement, the BoJ will release its updated quarterly Outlook for Economic Activity and Prices, which will provide crucial guidance on whether the board intends to accelerate its path toward a neutral rate or temporarily pause to evaluate currency fluctuations, global growth risks, and domestic consumer resilience.

The Reserve Bank of New Zealand (RBNZ) enters its upcoming Monetary Policy Review, scheduled for late October⁷, in a delicate balancing act between sticky inflationary pressures and an uneven domestic economic recovery. Following its September decision to raise the Official Cash Rate (OCR) by 25 basis points to 2.75%³, central bank officials continue to monitor elevated headline inflation driven by global energy disruptions and fuel costs, even as core inflation measures remain within the 1% to 3% target band⁸. Market participants will closely watch whether the RBNZ Signals further rate increases to firmly anchor long-term expectations, or whether persistent headwinds - such as high unemployment⁹, subdued consumer spending, and weak housing market activity¹⁰ - prompt a pause to allow previous monetary tightening to work through the economy.

• Following an uptrend initiated in early 2025 (demarcated by the ascending trendline), EUR/USD broke below the uptrend and entered a consolidation phase in July 2025. The price action exhibited a broadening formation bounded between 1.1320 and 1.2080.
  
• Following a peak near 1.2080 in early 2026, the pair has formed lower highs and is currently testing the lower boundaries, above a major confluence of structural support (marked by a light yellow rectangle on the chart).
  
• Immediate resistance: 1.1507 (monthly S1 / Moving average confluence).
  
• Secondary resistance (PP): 1.1609 (Intermediate descending red line/monthly PP).
  
• Immediate confluence support: 1.1330–1.1396 (horizontal support June/July 2026 (small rectangle)/descending red line support) / lower boundary).
  
• Major confluence support: 1.1250 - 1.1296 (the widening formation lower boundary, monthly S3 of 1.1296, annual pivot point of 1.1280).
  
• Moving averages: Price action trades below the short-term (9 EMA) and intermediate (21 SMA) moving averages, forming dynamic resistance at 1.1507.
  
• Stochastic oscillator: Tracks downward price action, hovering near oversold territory, so far, without bullish convergence.
  
• Relative strength index (RSI): Prints at 40.0. Although it remains above its oversold 30 level, its current level marks the lowest momentum reading in the widening pattern, supporting the prior downside bias and reflecting a potential oversold phase (blue circles).

• The overall context of the EUR/JPY weekly chart indicates that price action has been trading within an uptrend since 2012, as marked by the dashed Blue Line. Multiple intermediate trend lines are also marked on the chart in blue and green colors.
  
• In July 2024, price action broke below the uptrend marked by the blue line and attempted multiple pullbacks, where it continued to find resistance, as marked by the blue circles on the chart.
  
• As of early 2026, price action traded sideways within the range of 181.00 - 186.00, as marked by the yellow rectangle on the chart.
  
• Following the Bank of Japan, US Treasury joint intervention on July 31st11, 2026, the price broke below the lower border of the sideways price action (yellow rectangle), attempted multiple pullbacks, and continued to find resistance below the 180.00 level.
  
• Price action is currently trading below its 3 moving averages: EMA9, SMA9, and SMA21. The 3 moving averages currently represent a confluence of resistance above the price action.
  
• A critical confluence of support below price, represented by the intersection of the ascending trendline (green) with the annual PP of 174.59.
  
• The RSI currently sits at 39.25, with its signal line at 48.67, indicating active weekly bearish momentum below the 50 threshold, but not yet in extreme oversold territory. Notably, the indicator displayed a distinct bearish divergence as higher price highs were accompanied by lower RSI highs, signaling waning upward momentum prior to the subsequent price decline during the September 7th weekly candle.
  
• MACD reads at -0.843, with the MACD line at -0.933 and the signal line at -0.091, where a negative crossover below the signal line and zero axis confirms the weekly momentum breakdown and shifting trend bias.

• Following a break above (June 2021), the upper border of a descending channel that began in 2020, price action has been trading within a rising wedge formation, as marked by the green lines on the chart. Price action continued to find support and resistance along it's upper and lower borders, with the exception of the US elections, as marked on the chart.
  
• A complex inverted head and shoulders formation began in March 2025.
  
• Marked by black color, price action broke above the neck line and completed a throwback, where it found support at the intersection of the neck line with the lower border of the rising wedge formation, and a confluence of moving averages, EMA 200, as marked by the circle on the chart.
  
• After finding support as just indicated previously, near level 1.3740, price action rose, breaking above critical price levels, including the monthly pivot point of 1.3889 and the annual pivot point of 1.4019, and the psychological level of 1.4000.
  
• Currently, price action is challenging a confluence of resistance represented by the rising upper formation intersection with the monthly R2 level of 1.4237.
  
• Lagging indicator RSI five remains in line with price action; however, it is currently reflecting a potential negative divergence, pending the weekly close prices.

• As of August 2014, New Zealand USD has been trading within a descending channel, as indicated by the red lines on the chart. The channel could be a falling wedge pattern for the upside move that began in 2008.
  
• As of September 2024, price action has been trading within a descending triangle as marked by the blue lines on the chart. Current price action broke below the lower border of the descending triangle; however, the weekly candle’s closing price is yet to be determined.
  
• In February 2026, exhaustion gaps are evident, aligning with the war in the Middle East. The gaps represent a level of resistance within the range of 0.5866 - 0.5973.
• The most recent downside move took the price below its annual PP of 0.5787; the last two weekly candles have already closed below it.
  
• Lagging indicators remain in line with price action, with RSI 5 currently at 18.04, below its oversold level. The stochastics indicator is at its oversold levels, with the %K line still below the %D line.

• As of May 2020, the CAD/JPY pair has been trading in an uptrend, rising from 75.00, peaking just below 119.00 in July 2024, and subsequently falling back to current levels near 110.70. The uptrend is marked on the chart by the ascending green line.
  
• The price action from July 2024 till today reflects a downward sloping resistance line (Red line), which intersects with the monthly R1 of 116.98.
  
• Following a period of consolidation (highlighted in yellow rectangle) price action broke below multiple critical levels, including the monthly PP of 113.90, the monthly S1 of 112.22, the EMA9, SMA9, and the SMA21. The broken levels currently represent a confluence of resistance above price action, as it attempts to find support above its annual PP of 110.02.
  
• The lagging indicator, RSI 14, remains in line with price action and is currently approaching its oversold levels.The indicator has previously shown a negative divergence, as indicated by the downward-sloping red line.

As October 2026 draws to a close, currency markets stand at a crucial inflection point defined by stark monetary policy divergence. The Federal Reserve’s sustained hawkish posture¹ contrasts sharply with the Bank of Japan’s emerging hawkish consensus² and the Reserve Bank of New Zealand’s delicate balance between inflation and growth headwinds⁸. Across the board, major pairs - including EUR/USD, EUR/JPY, USD/CAD, NZD/USD, and CAD/JPY - are simultaneously probing major structural support zones and key dynamic resistance levels. Traders and market participants should closely monitor upcoming central bank rate decisions and macroeconomic releases, as breakouts or holds at these key technical thresholds may dictate the directional bias heading into the final two months of the year.

Abbreviation list:

EMA: Exponential moving average

SMA: Simple moving average

RSI: Relative strength index

%K: Fast stochastic

%D: Slow stochastic

MACD: Moving average convergence divergence

Pivot point: PP

Support: S

Resistance: R

Footnotes

¹https://www.federalreserve.gov/newsevents/pressreleases/monetary20260916a.htm

²https://www.nippon.com/en/news/yjj2026100100389/

³https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/the-official-cash-rate

⁴https://www.bea.gov/data/personal-consumption-expenditures-price-index

⁵https://www.bloomberg.com/news/articles/2026-09-30/us-consumer-spending-rises-by-most-in-a-year-core-pce-up-0-2

⁶https://www.japantimes.co.jp/business/2026/10/02/economy/tokyo-inflation-september/

⁷https://www.bloomberg.com/markets/economic-calendar

⁸https://www.rbnz.govt.nz/monetary-policy/about-monetary-policy/inflation

⁹https://www.stats.govt.nz/indicators/unemployment-rate/

¹⁰https://www.thepost.co.nz/politics/361089255/housing-market-slowdown-appears-baked-treasury-pre-election-forecast-shows

¹¹https://www.ft.com/content/0f9b2fe7-bde4-4f5f-b49e-93ccb5da9ea8?syn-25a6b1a6=1