This week features two central-bank decisions: the Reserve Bank of Australia on 3 November and the Bank of England (BoE) on 5 November. However, the BoE is expected to leave rates unchanged. The US midterm elections will take place on 3 November and could sway the balance of power in both houses of Congress. The week will also bring a slew of economic data, including the Institute for Supply Management (ISM) manufacturing and services reports and the US jobs report. Earnings season will remain busy, with Apple's report as the early-week headliner.
ISM PMI reports
Monday 2 November
The ISM manufacturing purchasing managers' index (PMI) report will be released on 2 November, followed by the services report on 4 November. Both reports will matter, as they give markets a sense of overall US business activity. However, the figures that may stand out most are the ISM prices-paid indices in both reports. These are key indicators of inflationary pressures in the US, and both have been rising and are near recent highs, suggesting inflation remains elevated. The readings could also provide an early indication of what to expect from the October consumer price index report. Additionally, both ISM reports will include employment indices, which could offer valuable insight into labour-market health ahead of the US jobs report on 6 November.
As a result, the ISM readings could play an important role in determining where EUR/USD ultimately heads. The currency pair has repeatedly tested support around $1.110 on 28 and 29 October but has so far failed to break below it. Additionally, early signs point to a potential bullish divergence, with the relative strength index (RSI) making a series of higher lows while EUR/USD continues to make lower lows. This could indicate that the euro may struggle to break below this key support level. If economic data comes in hotter than expected, the euro could finally break support and move towards the $1.07 region. However, until then, we need to remain open to a reversal, which could lead to a retest of $1.12.
