Forex Today: US Dollar clings to bullish stance ahead of mid-tier data releases

Here is what you need to know on Tuesday, October 6:

The US Dollar (USD) stays resilient against its peers early Tuesday, with the USD Index staying in positive territory after posting modest gains on Monday. Later in the session, Eurostat will publish Eurozone Retail Sales data for August. In the American session, trade balance data from Canada and the US will be featured in the economic calendar. Investors will also continue to pay close attention to comments from the European Central Bank (ECB) and the Federal Reserve (Fed) policymakers in the second half of the day.

The benchmark 10-year US Treasury bond yield edged higher on Monday and supported the USD. However, a slight improvement seen in the risk mood, as reflected by the bullish action seen in Wall Street's main indexes, capped the USD's upside. US President Donald Trump signed an executive order to ease restrictions on the use of a tax-exempt variety of diesel late Monday. Trump explained that the measure would “officially waive the off-road requirement and allow anyone to purchase tax-free, red-dyed diesel for any reason.”

Meanwhile, crude Oil prices continue to ease despite news of Yemen's Houthi carrying out three military operations using ballistic and cruise missiles and drones against airports, an oil facility, and military sites across Saudi Arabia. After losing about 2% on Monday, the barrel of West Texas Intermediate (WTI) trades below $88 early Tuesday, down nearly 1% on the day.

EUR/USD closed in negative territory on Monday as the uncertainty surrounding France's fiscal outlook cause investors to doubt the ECB's ability to tighten the policy. After losing 0.3% on Monday, EUR/USD struggles to stage a rebound and trades a tad above 1.1200 in the European morning on Tuesday. Earlier in the session, the data from Germany showed that Factory Orders declined by 10.6% on a monthly basis in August, missing the market expectation for a 1% contraction by a wide margin.

Euro under pressure as French bond stress keeps EUR/USD risks skewed lower

Analysts at ING note that, “alongside a direct – albeit so far relatively contained – build-up of fiscal premium, the Euro continues to suffer from an unwinding of ECB rate hike expectations due to French bond turbulence,” leaving “risks firmly on the downside for EUR/USD.” They point out that “some relief in French bonds yesterday helped EUR/USD recover to just above 1.120 after a fall to 1.1160,” but add that “we don’t have much confidence in a sustained rebound.” With “the fiscal risk premium still relatively limited,” ING sees “scope for EUR/USD to test 1.110 or even 1.100 if bond market stress intensifies.”

Bank of Japan (BoJ) Governor Kazuo Ueda said on Tuesday that the Japanese economy is recovering moderately albeit with some weaknesses, and added that the underlying inflation is approaching 2%. USD/JPY stays relatively quiet above 158.00 in the European morning on Tuesday after posting marginal gains on Monday.

GBP/USD holds steady at around 1.3200 in the European session on Tuesday. The pair declined on Monday but it managed to limit its losses as the British Pound captured capital outflows out of the Euro.

Gold (XAU/USD) closed flat on Monday as the broad-based USD strength and rising US T-bond yields made it difficult for the precious metal to gather strength. XAU/USD edges lower toward $4,100 early Tuesday.

Commenting on Gold's near-term outlook, ING noted that "any further upside could be constrained, with “gains [likely to] remain capped by elevated Treasury yields, persistent inflation concerns and a firmer US dollar.”