Insights 
VT 
In the United States, mortgage applications increased by 8% in early October. This marks an improvement from the previous decrease of 12.7%.
In currency markets, GBP/JPY rose to 205.00 as expectations for a Bank of Japan rate hike subsided. USD/CHF gained strength due to a firm US Dollar amidst US shutdown concerns and speculation of an SNB rate cut.
Gold Prices Driven by Safe Haven Demand
Gold prices remained stable above $4,000, driven by safe-haven demand influenced by US shutdown fears and potential Fed rate cuts. The Federal Reserve’s meeting minutes are anticipated to provide insights into future rate cut paths during the ongoing government shutdown.
EUR/USD faced pressure near the 1.1600 level, affected by political instability in France and a stronger US Dollar. Meanwhile, GBP/USD dropped below 1.3400 amid persistent interest in buying the US Dollar.
In the cryptocurrency market, Solana remained above $220, but on-chain activity decline could delay a move toward the $250 mark. The broader cryptocurrency market showed signs of recovery after a previous correction.
Impacts of Ongoing Government Shutdown
The ongoing government shutdown is creating significant uncertainty, which we see as an opportunity to trade market volatility. Historically, events like the prolonged shutdown in late 2018 led to sharp spikes in the VIX index, which jumped over 80% in a few weeks. We believe buying volatility through options on major indices could be a prudent strategy for the coming weeks.
With the shutdown delaying crucial jobs data, the Federal Reserve’s path on interest rate cuts has become much harder to predict. The Secured Overnight Financing Rate (SOFR) futures market is now pricing in a volatile 60% chance of a rate cut by December, a notable shift from the 85% probability priced in just last month. This uncertainty makes options on interest rate futures an attractive way to position for the Fed’s eventual announcement.
The improvement we’ve seen in mortgage applications, from -12.7% to -4.7%, suggests the housing market may be stabilizing after the sharp downturn of 2024. This data could temper expectations for the number of rate cuts the Fed is willing to deliver this cycle. We see this as a sign that the worst of the housing slowdown may be in the past.
The US Dollar remains strong, benefiting from both the political instability in France and its status as a safe haven during the shutdown. The yield spread between French and German 10-year government bonds has widened by 15 basis points over the past week, confirming investor anxiety in Europe. We anticipate further pressure on the EUR/USD pair, making short-dated put options a potentially effective hedge.
Gold is serving its traditional purpose as a safe haven, pushing well past the $4,000 an ounce mark. This price action mirrors the pattern from the 2011 US debt ceiling crisis, when gold rallied over 15% in a single month on fiscal fears. Given how high the price is now, using call option spreads can allow traders to participate in further upside while capping the initial cost.
While riskier assets like Solana are attempting a recovery, the noted decline in on-chain activity is a clear warning sign. This suggests the recent price bounce lacks strong conviction and is being driven by speculation rather than fundamental demand. We view this as an indicator that broad market confidence has not yet returned.
