Monday mornings usually have low market activity until more Asian markets open, which can lead to price swings. Right now, the USD has gained slightly after the U.S. strikes on Iran. The EUR/USD is at 1.1632, and USD/JPY is at 148.03, showing some strength in the yen. Following the weekend election, Japan’s ruling coalition has lost its majority in the Upper House. The GBP/USD is at 1.3406. Other currency pairs include USD/CHF at 0.8018, USD/CAD at 1.3715, AUD/USD at 0.6510, and NZD/USD at 0.5963. ForexLive traders are ready for the new FX week.

Market Reactions and Implications

The market is reacting to the U.S. strikes on Iran, leading to low liquidity and the risk of sharp price movements. This uncertainty can cause implied volatility to increase, similar to the spike over 30% in the CBOE Volatility Index (VIX) after the Ukraine invasion in February 2022. Derivative traders might consider buying call options on the VIX or straddles on major currency pairs to prepare for a likely rise in market volatility. The yen is strengthening, reflecting a classic move to safety that is overshadowing local political news. Global risk aversion is driving investors toward traditional safe havens like the yen. We suggest traders look into buying JPY call options or taking bearish positions on USD/JPY, as historical trends show the yen tends to gain during geopolitical tensions. The U.S. dollar is also increasing, but not significantly, suggesting its safe-haven status is being offset by other concerns. Fed fund futures indicate there is over a 60% chance that the Federal Reserve will keep interest rates unchanged at its next meeting, which may limit the dollar’s upward movement. This suggests writing out-of-the-money call options on the U.S. Dollar Index (DXY) to take advantage of a potential halt in its rally.

Australian and New Zealand Dollar Outlook

Typically, the Australian and New Zealand dollars weaken during risk-off events, as these currencies reflect global growth sentiment. Their value closely follows commodity prices and China’s economic health, which recently showed a disappointing Caixin Manufacturing PMI that struggled to stay positive. We see an opportunity to buy put options on the AUD/USD, speculating on further declines if global tensions affect economic forecasts. Create your live VT Markets account and start trading now.

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