The US Dollar stayed firm against major currencies on Friday, with the USD Index (DXY) holding in the upper 98.00s. The DXY was set for a 0.4% weekly gain as tensions between the US and Iran increased and risk appetite remained low.
The US President extended the ceasefire this week, while Iran kept the Strait of Hormuz closed for an eighth week and the US military continued a blockade of Iran’s ports. Peace talks remained stalled, with no date set for a new round that had been expected this week.
Rising Pressure On Iran
On Thursday, the US President stated on social media that Iran had limited time to reach a peace deal. Israel said it would escalate action against Iran if the US approved.
Iran’s Deputy President, Esmaeil Saqab Esfahani, warned of retaliation against the US. He also said Iran could attack Gulf oil facilities if Iranian energy sites were targeted.
US Defence Secretary Pete Hegseth and Joint Chiefs chair Dan Caine scheduled a press conference for 08:00 AM ET (12:00 GMT) on Operation Epic Fury. US data also supported the Dollar, with April’s preliminary S&P Global PMI showing solid activity and jobless claims rising moderately while pointing to a steady labour market.
With the “Operation Epic Fury” announcement pending, we should anticipate a significant spike in market volatility. This is a time to consider buying options, such as straddles on the S&P 500, to profit from a large price move in either direction. We saw the VIX jump over 35 during the initial conflict in Ukraine, and a similar reaction is highly probable now.
Trading Implications And Positioning
The continued closure of the Strait of Hormuz, a chokepoint for nearly a fifth of global oil supply, makes long positions on crude oil futures look extremely attractive. Call options on Brent crude offer a leveraged way to play a potential supply shock from any direct military action. For perspective, when geopolitical tensions flared in the Gulf in 2025, we saw Brent crude surge by 15% in under a week.
The US dollar’s strength is supported by both a flight to safety and solid domestic data, with the latest March 2026 jobs report showing a robust gain of 215,000 jobs. We should look at buying DXY futures or selling EUR/USD futures, as capital continues to flow into US assets. Historically, the DXY rallied from the low 90s to over 103 in similar risk-off environments driven by conflict.
Given the high probability of escalating conflict, we should be positioned for a downturn in equity markets. Buying put options on the Nasdaq 100 provides a hedge against a sell-off in growth-sensitive tech stocks. At the same time, call options on gold ETFs should perform well, as gold’s traditional safe-haven appeal is magnified by war and the inflationary risk from higher oil prices.
