Forex Today: Markets turn cautious ahead of key US data

Here is what you need to know on Wednesday, October 5: Following a two-day risk rally, markets seem to have turned cautious mid-week. The US Dollar In  |  05/10/2022 08:01

Here is what you need to know on Wednesday, October 5:

Following a two-day risk rally, markets seem to have turned cautious mid-week. The US Dollar Index, which is already down more than 1.5% so far this week, stays relatively quiet above 110.00 early Wednesday and the 10-year US Treasury bond yield holds steady at around 3.6%. The US economic docket will feature the ADP's private sector employment report and the ISM's PMI survey for the service sector for September alongside Goods Trade Balance data for August. The European Union is scheduled to release the details of the new sanctions against Russia that include the oil price cap.

ADP Jobs Preview: How the data creates a dollar selling opportunity ahead of the ISM Services PMI.

Market participants will keep a close eye on headlines coming out of the OPEC+ meeting as well. Reports suggesting that the group could lower production by as much as 2 million barrels per day caused oil prices to rise late Wednesday. The barrel of West Texas Intermediate (WTI) rose nearly 4% on Tuesday following Monday's 5% gain and was last seen trading within a touching distance of $87.

Reflecting the souring market mood, US stock index futures are down between 0.4% and 0.5% early Wednesday. Rising geopolitical tensions seem to be weighing on risk sentiment. In response to Washington's decision to send more military aid to Ukraine, Russia's ambassador to the US said earlier in the day that the danger of a direct clash between Russia and the west had escalated. 

During the Asian trading hours, the Reserve Bank of New Zealand announced that it hiked its policy rate by 50 basis points (bps) to 3.5% as expected. The bank noted that the committee considered whether to raise the rate by 50 or 75 bps before deciding to opt for a 50 bps that was appropriate to maintain price stability and contribute to maximum sustainable employment. With the initial reaction, NZD/USD climbed above 0.5800 for the first time since September 23 but retreated toward 0.5750 amid risk aversion.

EUR/USD registered impressive gains on Tuesday and tested parity before going into a consolidation phase. As of writing, the pair was moving sideways near 0.9980.

GBP/USD closed the sixth straight day in positive territory on Tuesday and touched its highest level in nearly three weeks at 1.1490. The pair is fluctuating in a narrow range above 1.1450 early Wednesday.

After having gained over 2% on Monday, gold preserved its bullish momentum amid slumping global bond yields and pierced through $1,700 on Tuesday. XAU/USD is already up 4% this week and trading above $1,720. 

USD/JPY edged lower on the relentless dollar selloff on Tuesday but found support near 144.00. The pair holds in positive territory near 144.20 early Wednesday. Japanese Prime Minister Fumio Kishida said on Wednesday, that it is important to link the weak yen to economic recovery by reopening inbound tourism and corporate reshoring.

Bitcoin rose nearly 4% on Tuesday and reclaimed $20,000 before going into a consolidation phase slightly above that level on Wednesday. Ethereum is up more than 6% this week and trades at around $1,350 in the European morning.

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