Why Hasn’t Trump’s War Pause Brought Relief?

📢 On Thursday, President Trump did something unusual: he put a war on a calendar. He said the US will not attack Iran before the November 3 midterm elections, and called the talks “productive.” You’d expect oil to fall on that. Instead, Brent jumped more than 5% to above $105 the same day. Why? Because a pause isn’t a deal. The US blockade of Iranian ports stays in place, Tehran says the Strait of Hormuz stays shut until its terms are met, and Iran’s formal reply to Washington is still “days” away.

So the risk of a bigger war is capped for about three weeks. The cost of the war is not. That cost shows up in one place above all: the US 10-year Treasury yield hit 5.36% last week, its highest since April 2002. Every market below is trading off that number. The next test is US inflation data (CPI) on Wednesday, October 14.

Stocks are the one market ignoring the bond scare. The S&P 500 index set a record of 7,844.52 last week and gained 1.15%.

Two things are carrying it. One is earnings: analysts expect third-quarter profits to grow about 29.6%, and JPMorgan, Goldman Sachs, Citigroup and Wells Fargo report on Tuesday. The other is politics. The White House is working hard to keep fuel prices down before the vote: the no-strike pledge on Thursday, then a deal on Friday for Russia to supply diesel to the US and global markets.

But cracks are showing. Tech fell Thursday after a report that OpenAI revenue was running around $20 billion below expectations. US consumer sentiment dropped to 46.3, while inflation expectations rose to 4.7%, from 3.4% before the war.

Markets see only a 19% chance of a Fed hike on October 28, but 84% by December. A hot CPI pulls that forward, and that is what stocks at record highs can’t afford. Producer prices and retail sales follow on Thursday, October 15.

Looking at the daily charts, both are very bullish.

We think price might break last week’s high and trend higher from there.

The Nikkei closed at 69,030.92, down 0.39% for the week, after briefly topping 70,000 for the first time in about three months.

Two stories are driving Japan’s market: AI and bonds. SoftBank, a major OpenAI investor, fell around 4% Friday as the AI trade weakened.

The second is the one we care about more: Japan’s 30-year bond yield hit a record 4.235% on October 5 amid concerns over Prime Minister Takaichi’s spending plans, including a two-year food sales-tax cut from 8% to 1%. She said spending could be reviewed if yields move unexpectedly, while Washington is also pushing for restraint.

The BOJ’s decision lands late Thursday, October 29 with about a 25% chance of another hike. The yen sits near 158 per dollar, which helps exporters but is also where Tokyo starts talking about stepping in. Finance officials gather at the IMF and World Bank meetings in Bangkok from October 12 to 18, so watch for yen headlines.

This one cost us last week. We entered early at Monday’s open and got stopped out.

However, taking a fresh look at the 4 Hour chart:

With price back at the 50% of the range, we might give this trade idea one more try.

The euro just logged its fifth straight weekly loss, its longest losing run since the start of 2025. It hit a 17-month low of 1.1161 on Monday and finished the week near 1.1199.

Two problems are stacked on top of each other. The first comes from the war: Europe imports its energy, so euro-area inflation rose to 3.8% in September. The European Central Bank has already raised rates twice since the war began, and it decides again on October 29.

Normally, higher rates lift a currency. Not this time, because of the second problem: France. The extra interest investors demand to hold French debt over German debt hit about 158 basis points on October 2, the widest since the 2011 debt crisis. Parliament starts debating the budget on Tuesday, October 13, with a presidential election due next spring. Moody’s reviews France’s credit rating on Friday, October 23.

That leaves the ECB trapped. Raise rates to fight inflation and it squeezes France harder. Hold back and inflation runs. Neither is good for the euro.

Looking at the 4-hour chart, we expected a pullback last week and didn’t get one. Price seems to want to go lower.

We’re not comfortable taking a trade here. Selling at the stretched end of a move is how good ideas turn into bad entries, so we’re standing aside for now.

Gold fell to a two-month low on Wednesday, then recovered to close at $4,194.65, its first weekly gain in three.

Here’s the part that confuses people: the war is not helping gold right now. War pushes oil up, oil pushes inflation up, and inflation pushes bond yields up. Gold pays no interest, so when a US Treasury pays over 5%, gold has serious competition. Add Trump’s no-strike pledge, which takes away the fear trade for three weeks, and gold loses both of its usual supports at once.

What holds the floor is central banks. Goldman Sachs estimates they are buying around 90 tonnes a month, against 17 tonnes before 2022. That’s why dips keep getting bought.

Looking at the 4-hour chart, price has reacted very nicely to our daily key level.

We might consider a long from here, depending on how the market opens.

New on our watchlist, and it’s a pair where both sides have problems.

The kiwi first. The New Zealand dollar fell below $0.56 last week, its lowest since November 2025. NZD/JPY touched its low for the year, 88.37, on October 5. New Zealand imports its energy, so high oil hits an already fragile economy. Then there’s politics: a tight election on November 7 (results land overnight Friday into Saturday, New York time), with polls suggesting Prime Minister Luxon’s coalition could lose power. The central bank, with rates at 2.75%, decides on Tuesday night, October 27, about ten days before the vote, with inflation data due Wednesday evening, October 21.

The yen side is the Japan story above: a central bank raising rates and a government ready to defend its currency.

Think of this pair as a mood gauge. When markets are calm, traders hold the kiwi for its higher interest rate. When they get scared, they sell it and buy yen.

Looking at the 4-hour chart, the selling has slowed. We’re seeing consolidation, which is a sign of weakening momentum.

We’ll now wait for a retracement to the 50% of the range. We might take the retracement trade itself, with low risk, if opportunity presents itself.

This one should be simple. Canada sells oil, oil is expensive, so the Canadian dollar should be strong. Instead, USD/CAD spiked to 1.4299 on Friday, the loonie’s weakest level since April 2025.

The reason is jobs. Canada lost 68,300 jobs in September, when economists expected a gain of about 7,000. That follows a loss of 41,700 in August, and unemployment rose to 6.5%. Two bad months have wiped out every job Canada added this year.

The rate gap matters. Canada’s rate is 2.25%, versus 3.75%-4.00% in the US. Money tends to go where it earns more, supporting the dollar. Several big banks expected a Canadian hike on October 28, but weak jobs make that harder.

Oil can’t fix the trade problem either. The US declined to renew USMCA in its current form on July 1, and tariffs remain on Canadian steel, aluminum, autos and lumber. Expensive oil helps energy producers, but the wider economy still faces uncertainty.

Then there’s inflation: 3% in August, with UBS expecting 3.3% for September, due October 19. Canada’s central bank faces rising prices and falling jobs at the same time.

Looking at the daily chart, this is very bullish.

Given the macro picture, we can expect higher prices. But we’ll only take the trade if we see a pullback towards the 50%.

Trump’s pledge tells us when the fighting won’t restart. It doesn’t tell us when the strait reopens, and it does nothing about the inflation the war has already caused. That’s why bonds kept selling while stocks hit records.

Wednesday’s CPI is the hinge. After that, five central banks decide inside three days, from Tuesday night, October 27, to Thursday night, October 29: New Zealand, Canada, the Fed, the ECB and Japan. Until then, we’re not trading the headline. We’re trading what the headline can’t fix.

A pause is not a peace. Size your risk for the day the calendar runs out.

Stay Informed, Stay Patient, and as always… Happy Trading!

— The UE Market Letter Team 👁️‍🗨️

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