Forex Today: Why are markets cautious ahead of the Fed?

Caution across markets has accompanied a firm start to the week for the US Dollar (USD), which has extended its recovery towards multi-day highs. The Greenback has gained further ground even as US Treasury yields have moved in different directions.

With key events and economic releases due later in the week, the US Dollar Index (DXY) briefly moved above 102.00, extending Friday’s gains. The data calendar begins with the ADP Employment Change Weekly figures. These will be followed by final Building Permits data, Durable Goods Orders, New Home Sales, the FHFA’s House Price Index, the Conference Board’s Consumer Confidence gauge and the API’s weekly report on US crude oil inventories.

Improving sentiment towards the US Dollar has pushed EUR/USD back below 1.1200 and down to multi-day lows. Ahead of a speech by the ECB's Lagarde, the ECB will publish its Loan to Companies/Households data.

Weak sentiment towards risk-sensitive assets has weighed on GBP/USD, driving the pair to four-day lows in the 1.3330-1.3320 range. The BRC Shop Price Inflation release will provide the next reading on UK inflation.

USD/JPY has recovered solidly to reach two-day highs near 157.60, supported by further US Dollar gains and divergent moves in the US money market. Japan’s upcoming releases include the regular weekly Foreign Bond Investment figures and the Consumer Confidence reading.

Although AUD/USD continues to trade unevenly, support around 0.7000 appears to have held the selling pressure in check for now. Attention in Australia will centre on the key Inflation Rate release on 28 October.

Renewed hopes of a possible US-Iran agreement to end the Middle East conflict have put further pressure on front-month WTI futures (December contract). Extending Friday’s retreat, prices briefly neared the psychological $100.00-per-barrel level before recovering some ground. 

Lower crude oil prices appear to have supported a rebound in Gold, helping it recover its footing despite a firmer US Dollar and mixed US Treasury yields. After two consecutive daily declines, the yellow metal has moved back above the key $4,000-per-troy-ounce level.