Oil Supply Disruption
Oil moves were tied to ships being unable to pass through the Strait of Hormuz and to output changes in Iraq, Kuwait and the United Arab Emirates. G7 finance ministers are set to discuss releasing petroleum from reserves, the Financial Times reported. The New York Fed Survey of Consumer Expectations showed one-year inflation expectations at 3% in February, down from 3.1% in January. Three-year and five-year expectations were both at 3%. UK data was absent, with focus on BRC Retail Sales for February, plus Industrial Production, GDP and a speech by Bank of England Governor Andrew Bailey. US releases include jobs, Existing Home Sales, Building Permits, Housing Starts, consumer inflation and Core PCE. On charts, GBP/USD sat near 1.3392 around clustered 50/100/200-day SMAs between 1.3530 and 1.3400, with resistance near 1.3450. Support levels include 1.3360, 1.3300 and 1.3200, while a sentiment index fell from above 123 to near 109.Derivative Trading Ideas
Given the escalation of the Iran conflict and the resulting flight to safety, we see the US Dollar strengthening significantly. Derivative traders should consider positioning for further downside in GBP/USD, potentially by purchasing put options. This strategy offers a defined risk while capitalizing on the current risk-averse environment which favors the greenback. This safe-haven flow into the dollar is a well-established pattern we saw during the onset of the Ukraine conflict in early 2022. In the months following that event, the US Dollar Index (DXY) rallied from around 96 to over 103 as global uncertainty peaked. A similar dynamic appears to be unfolding now, suggesting the dollar’s strength has room to run. The sheer uncertainty of the situation, with risks of both escalation and sudden de-escalation, is causing a surge in expected price swings. We should therefore look at long volatility strategies, such as buying straddles on GBP/USD. This allows a trader to profit from a large price move in either direction, which is ideal when the geopolitical outcome is binary. Historically, geopolitical crises cause a spike in implied volatility, making such strategies profitable. During the 2022 Ukraine invasion, the Cboe Volatility Index (VIX) jumped over 30%, and we expect to see a similar reaction in currency volatility measures now. This makes the current premium paid for options a potentially wise investment in expected turmoil. As the conflict is directly impacting oil transit through the Strait of Hormuz, a direct play on crude oil is warranted. Buying call options on WTI or Brent crude futures is a straightforward way to speculate on further supply disruptions. The initial 11% jump in oil prices suggests the market is extremely sensitive to this chokepoint. We can look back to the 1990 Gulf War for a precedent, when crude oil prices more than doubled in just a few months following the disruption in the Middle East. That historical event shows how quickly energy markets can reprice, suggesting that long positions in oil derivatives could yield significant returns if the current conflict persists. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
