Forex Today: Geopolitics keep markets on edge to start the week

Here is what you need to know on Monday, October 16:

Markets started the week on a cautious note as geopolitical tensions in the Middle East continued to escalate over the weekend. Eurostat will release Trade Balance data for August and the US economic docket will feature the Federal Reserve Bank of New York's Empire State Manufacturing Survey for October on Monday. Meanwhile, investors will keep a close eye on headlines surrounding the Israel-Hamas conflict.

White House National Security Advisor Jake Sullivan noted on Sunday the US couldn’t rule out Iran intervening, either directly or via Hezbollah - the Lebanon-based militia group that it sponsors. “Iran will not remain an observer in this situation and has informed Israel via its allies if its crimes in Gaza continue tomorrow will be too late,” Iran’s Foreign Minister Hossein Amir Abdollahian said. Meanwhile, the United Nation's humanitarian office warned fuel reserves of hospitals in Gaza were about to run out. 

In the European morning, US stock index futures trade modestly higher, while the US Dollar (USD) Index was fluctuating at around 106.50. Following Friday's sharp decline, the benchmark 10-year US Treasury bond yield opened with a bullish gap and was last seen rising more than 1% on the day at 4.68%.

Center-right National Party led by Christopher Luxon won the general election in New Zealand over the weekend, ousting the Labour Party. Luxon still needs to reach a deal with coalition partners and he told reports that negotiations about forming a government with Act and potentially NZ First would be “worked out over the next days and weeks." NZD/USD gathered bullish momentum following this developments and the pair was last seen rising 0.7% on the day at 0.5925. 

After posting losses in the previous week, EUR/USD staged a modest correction early Monday and went into a consolidation phase slightly below 1.0550.

Gold rose sharply and gained more than 3% on Friday as the precious metal capitalized on safe haven demand. XAU/USD reversed its direction early Monday and was last seen losing more than 1% on the day at $1,910.

Pressured by hawkish comments from Bank of Canada (BoC) Governor Tiff Macklem and surging crude oil prices, USD/CAD closed in negative territory on Friday. Later in the day, the BoC will release the Business Outlook Survey for the third quarter. The barrel of West Texas Intermediate holds steady slightly above $87 early Monday and USD/CAD fluctuates in a tight channel near 1.3650.

Following a quiet Asian session, GBP/USD gained traction and climbed toward 1.2200 in the European morning. The UK's Office for National Statistics will release wage inflation data on Tuesday.

After coming within a touching distance of the critical 150.00 level in the second half of last week, USD/JPY lost its traction and retreated to the 149.50 area. The data from Japan showed earlier in the day that Industrial Production contracted by 0.7% on a monthly basis in August.