Geopolitics And Oil Shock
The US carried out airstrikes on Iran’s Kharg Island, targeting military sites. President Donald Trump said the US could strike Iran’s oil infrastructure if ships are hindered, and asked China, the United Kingdom, France, Japan and South Korea to send warships. Iran’s Foreign Minister Abbas Araghchi said the strait would be closed only to “enemies and those supporting their aggression”, according to SNN. Energy costs raised inflation concerns and reduced expectations for Fed cuts. CME FedWatch showed the odds of a 25-bps June cut fell to 23.6% from 51.2% a month ago. Markets priced in one cut by year-end instead of two, ahead of a Fed decision expected to hold rates at 3.50%–3.75%. Policy decisions are also due from the BoE, ECB, BoJ, BoC and RBA. The BoE, ECB, BoJ and BoC were expected to hold, while the RBA was seen raising again.Markets And Trading Positioning
Technically, gold tested $5,000, with the 50-day SMA near $4,955 and the 100-day SMA around $4,573. RSI was near 47, with MACD below the signal line, and resistance near $5,200. With the market’s “fear gauge,” the VIX, jumping to 28.5 this week, a level we haven’t seen since the regional banking stress in 2025, options have become expensive. We should therefore focus on strategies like credit spreads on major indices to collect this high premium, betting that markets will remain in a range ahead of Wednesday’s Fed decision. This approach allows us to profit from elevated volatility without needing to predict the market’s exact direction. The 37% spike in WTI crude is the main driver of uncertainty, and we must prepare for it to worsen. Historically, during the 1990 Gulf War, oil prices more than doubled in just a few months, showing how quickly supply disruptions can escalate. We can use long call option spreads on oil ETFs to position for further upside while defining our maximum risk if the conflict de-escalates unexpectedly. The market has aggressively priced out Fed rate cuts, with SOFR futures now implying a year-end rate near 4.0%, a sharp reversal from just last month. A direct trade for this week’s meeting is to anticipate a hawkish tone from Fed Chair Powell, given the inflation risk from energy prices. We can express this view by using derivatives to bet against Treasury bonds, such as buying puts on the TLT ETF. Gold is caught between geopolitical safe-haven demand and the pressure from higher rate expectations, pinning it near the $5,000 level. Gold’s own volatility index is up 40% in three weeks, so we can sell out-of-the-money puts below the key technical support level of $4,955. This strategy allows us to collect rich premiums while setting a price at which we would be comfortable owning gold if it drops. We should also look at the clear policy divergence between central banks this week. The Reserve Bank of Australia is expected to hike rates again, while the Bank of Japan is set to hold its policy steady. This creates a compelling opportunity to go long on the Australian dollar against the Japanese yen using currency futures or options. Create your live VT Markets account and start trading now.
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