A more defensive mood has gripped global markets and FX this week. There has not been one particular catalyst here, although if this does turn out to be a sizeable correction, investors would probably blame things like valuations, uncertainty about the depth of the Fed easing cycle and perhaps even the election of Zohran Mamdani as mayor of New York. On valuations, it seems clear that markets are overextended. One metric of valuation, the Shiller Cyclically Adjusted Price Earnings ratio (CAPE), stood at more than 40 a few days ago – very close to the Dot Com extremes in 2000, ING's FX analyst Chris Turner notes.

DXY to trade at the top of the 100.25-96.25 range

"FX markets are reflecting this nervousness, with high beta currencies under pressure and the dollar generally bid – particularly as positions get pared back in emerging markets. In the G10 space, this week's shift to defensive positioning has seen cross rates like AUD/JPY and NOK/JPY (pairs with some of the highest correlation to equities) fall some 2.00/2.25%. One could argue that the yen would be the preferred safe haven now given that Japanese authorities would welcome a stronger yen, while Swiss authorities would fight against a stronger Swiss franc."

"For today, the hottest release will be October's release of the ADP jobs data report at 1415CET. Expectations are for a modest increase at +30k after last month's 32k fall. Remember, this formerly discredited release is back in fashion, given that we have no official jobs data. An on-consensus reading today probably keeps the dollar supported, given that it would maintain doubts about whether the Fed cuts again in December. That outcome is currently priced with a 73% probability. A soft/negative number should prove mildly bearish for the dollar – and even supportive for risk assets – on the view that the Fed would cut again in December."

"There is also ISM services data today. This is loitering near the 50 number, and again any softer-than-expected release could take some of the bullish pressure off the dollar. We prefer to see DXY at the top of the 100.25-96.25 three-month trading range. But we need to get more information on the slowing US jobs market to cement the top of this range."