Risk appetite firmed into Friday after Donald Trump said there would be no US attack on Iran before the November 3 midterm elections, while the University of Michigan Consumer Sentiment Index for October is due later. Trump also said talks with Iran were productive and claimed oil was “flowing in record numbers of barrels through the Hormuz Strait”, though a newspaper reported he had instructed officials to draw up options for renewed fighting. In European morning trade, US stock index futures rose between 0.1% and 0.6%; WTI slipped about 0.5% to near $90, and the USD Index eased towards 102.00 after marginal losses on Thursday.
Federal Reserve Governor Christopher Waller said further policy-rate increases are needed, but that the pace could remain flexible. Deutsche Bank said the 10-year Treasury yield hit 5.35% intraday before closing 5.7bps lower at 5.23%, and added that Fed pricing turned slightly more dovish after Waller said hikes need not come at consecutive meetings. USD/CAD steadied above 1.4200 ahead of Canada’s September jobs report, where the unemployment rate is expected at 6.5% versus 6.4%. EUR/USD held above 1.1200, GBP/USD stayed above 1.3200, gold traded near $4,200 up about 1.5%, and USD/JPY rose nearly 0.3% above 158.20. Japan’s finance minister said a DOGE-style spending review would widen scrutiny of tens of billions of dollars in public funds and subsidies.
Energy, Fixed Income, and Precious Metals Outlook
We suggest derivative traders watch the crude oil market closely as West Texas Intermediate (WTI) hovers near $90. Although the temporary pause in US-Iran tensions before the November midterms offers short-term relief, historical data shows geopolitical pauses often precede sharp 8% to 12% swings in energy derivatives. We recommend utilizing volatility-based options strategies to capture sudden price movements once the political window closes.
With the 10-year US Treasury yield pulling back to 5.23% from its recent peak of 5.35%, we see a shifting landscape for interest rate futures. The Federal Reserve’s hinted flexibility suggests the aggressive pace of consecutive hikes is slowing, which historically triggers short-term rallies in fixed-income derivatives. Traders should consider positioning for a flatter yield curve as upcoming macroeconomic data guides the next policy steps.
Gold’s impressive climb toward the $4,200 level represents exceptionally strong underlying demand. Historically, when precious metals retain momentum after a yield pullback, it indicates deep institutional hedging against long-term inflation. We believe maintaining long exposure through gold futures or options is a prudent way to hedge against unexpected post-election policy shifts.
Currency Market Developments and Strategies
In the currency markets, we are closely monitoring USD/CAD as it trades above 1.4200 ahead of Canadian labor data. With market expectations pointing to an unemployment rate of 6.5%, any upward surprise could quickly weaken the Canadian Dollar and push the pair toward major resistance levels. We advise traders to employ defensive risk management on CAD positions to navigate this expected volatility.
Meanwhile, the USD/JPY pair continues to gain traction above 158.20 following Japan’s new spending review initiatives. Historically, major fiscal restructurings in Japan spark sharp yen volatility as markets assess the funding of costly government pledges. We suggest maintaining a short-term bullish bias on USD/JPY while remaining highly alert to potential government intervention zones near 160.00.
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