Disruptions around the Strait of Hormuz and Bab El-Mandeb are changing risk levels for Saudi crude exports and the ability to reroute cargoes. Up to 16–17m b/d of crude flow through Hormuz has been halted, and about 7m b/d of that can bypass the strait. Saudi Arabia has about 5–5.5m b/d of spare bypass capacity versus pre-war levels on the East-West pipeline, allowing exports via the Red Sea. The East-West pipeline appears to be running at full capacity, while Yanbu ports show 13m b/d of scheduled crude loadings for export this week and over 5m b/d next week.

Yanbu Export Exposure To Red Sea Risk

Based on schedules, around 70–75% of Yanbu exports could face disruption if Houthi activity affects the Red Sea. Of Yanbu exports, 90% are set to load on VLCCs, and at least 80% of that is expected to go to Asian markets or the Saudi Jazan refinery. Fully laden VLCCs cannot use the Suez Canal, which points to Bab El-Mandeb transit for many cargoes. Up to 2–2.5m b/d of scheduled VLCC flows could instead go north to Ain Sukhna and use the 2.5–2.8m b/d SUMED pipeline to Sidi Kerir, with just over 2m b/d seen as the upper limit for this route. Given the massive disruption in the Strait of Hormuz, the market is facing a severe supply shock that rerouting cannot fully solve. With the Saudi East-West pipeline to the Red Sea now operating at its limit, we see a clear bullish case for crude oil in the immediate future. This situation is a significant escalation from the shipping delays we observed through 2024 and 2025. The risk to this rerouted oil is not theoretical, as it now must pass through the Bab el-Mandeb strait. We saw Brent crude prices jump over $115 per barrel after the reported missile near-miss of a VLCC in that waterway last month. The CBOE Crude Oil Volatility Index (OVX) remains elevated near 55, reflecting the market’s anxiety over a potential direct hit on a tanker.

Trading And Market Implications

A huge portion of these exports, up to 75% of the flow from Yanbu, is loaded onto VLCCs that are too large to transit the Suez Canal. This forces them south through the high-risk zone to reach Asian markets. The alternative path using Egypt’s SUMED pipeline is already strained and can only handle a maximum of about 2.5 million barrels per day, leaving a significant bottleneck. For traders, this implies a strategy of buying call options on front-month Brent futures to capitalize on price spikes while defining risk. The spread between Brent and WTI crude has already widened to nearly $9, the largest gap since late 2024, as the disruption is most acute for Middle Eastern barrels. We believe this spread is likely to widen further in the coming weeks. The market structure strongly supports this view, with the futures curve in a steep backwardation, signaling an immediate and severe shortage of supply. This premium on near-term contracts suggests that holding long positions in May or June 2026 contracts is the most direct way to trade this tightness. This is reminiscent of, but more sustained than, the price action we witnessed after the Saudi facility attacks back in 2019. Create your live VT Markets account and start trading now.

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Canada’s February CPI came in at 1.8%, down from 2.3% in January and below forecasts. Excluding indirect taxes, inflation was 1.9%, which was under 2.0% for the first time in 15 months. Shelter inflation eased to 1.5%, below its 1999–2019 average of 2.2%. Bank of Canada core measures averaged 1.0%, pointing to broadly slower price growth across components. The report notes the data predates the latest rise in oil prices linked to conflict in the Middle East. It projects headline inflation could move towards 3.0% in coming months as higher oil prices feed through. Core inflation is expected to be less affected in the short term. The piece also refers to an economy in oversupply and uncertainty linked to tariffs. The item was produced using an AI tool and reviewed by an editor. It is attributed to the FXStreet Insights Team, which compiles market observations from external experts and internal and external analysts. Looking back at the situation in early 2025, we saw inflation was well under control before the Middle East conflict caused oil prices to spike. At that time, headline inflation had dropped to 1.8% and core measures were even lower at an average of 1.0%. The main driver for this softness was moderating shelter costs, which were running below their long-term pre-pandemic averages. This underlying weakness gave us confidence that the Bank of Canada would look through any temporary, oil-driven jump in headline inflation. As we expected, headline CPI did accelerate, touching 2.9% by August 2025 as higher energy costs filtered through the economy. However, the Bank held its policy rate steady through the summer, correctly identifying the shock as transitory and focusing on the weak domestic demand. That patience was justified as the economy showed signs of faltering in the second half of the year, with Q4 2025 GDP growth coming in at a tepid 0.6% annualized. With the effects of the oil shock fading and the economy operating with excess capacity, the Bank of Canada shifted its stance. We saw them deliver two consecutive 25-basis-point rate cuts in the fall of 2025, bringing the overnight rate to its current level. Today, while headline inflation has settled back down to 2.2%, core inflation has proven stickier than anticipated last year and is now hovering around 2.5%. This persistence is limiting the Bank’s appetite for further immediate cuts, creating a state of policy tension. The market, as seen through overnight index swaps, is now pricing in roughly a 40% chance of one more rate cut by the end of this year, a significant shift from the more aggressive cutting cycle priced in during 2025. For derivative traders, this means the straightforward trade of betting on lower rates is now more complex. With the Bank of Canada likely on hold in the immediate future, selling volatility through options strategies like strangles on bond futures could be advantageous. This position would profit from a period of stability as the market waits for a clearer signal on either inflation or economic growth. Given the recent strength in the US dollar, traders should also consider positioning for the USD/CAD exchange rate to remain elevated. The rate differential between the US and Canada continues to favour the US dollar, with the pair trading near 1.3850, up from the 1.35 level seen in early 2025. Buying call options on USD/CAD provides upside exposure if Canadian economic data disappoints further, while limiting downside risk.

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ING’s Warren Patterson revised a base case for global energy markets and removed an earlier assumption of a two-week disruption in the Strait of Hormuz. The updated approach assumes disruption lasting into late March or longer, with gradual normalisation through the second and third quarters. The earlier base case assumed a full two-week stoppage, followed by recovery during March and near-normal flows by April. It has been revised because the conflict entered its third week with no resumption in energy flows.

Updated Base Case Assumptions

In scenario 1, the new base case, flows remain cut off until the end of March while intense combat continues until month-end. Lower-intensity strikes and more diplomatic activity then allow a gradual recovery in the second quarter. Upstream production, refineries and LNG facilities ramp up as storage constraints ease, and some oil continues to bypass Hormuz via available pipeline capacity. Near-normal flows return by the start of the third quarter. Scenario 2 is the most optimistic: flows remain almost fully disrupted until the end of March, then improve in April. Supply returns to near normal by May. Scenario 3 assumes fighting stays intense into April, then shifts to ongoing lower-level confrontation with limited diplomacy. Attacks on vessels keep energy flows disrupted for an extended period.

Market Volatility Outlook

Given that our initial assumption of a quick two-week disruption has failed, the market’s volatility will likely remain extremely elevated. With Brent crude futures already pushing past $125 per barrel, the CBOE Crude Oil Volatility Index (OVX) has surged to over 75, a level indicating significant market stress. Traders should prepare for this high-volatility environment to persist through the second quarter. The new base case, which sees disruptions lasting until the end of March with a slow recovery, suggests the front-end of the oil futures curve will remain in steep backwardation. This is where near-term delivery contracts trade at a significant premium to longer-dated ones, reflecting the acute, immediate shortage of supply from a strait that handles nearly 20% of global oil consumption. Positioning for this through calendar spreads could be a viable strategy. Buying call options with expirations in June and July now aligns with the updated view that a return to normal flows may not occur until the start of the third quarter. While high implied volatility makes these options expensive, it reflects the genuine risk of further price spikes if the conflict escalates toward the more aggressive scenario. The potential for a sharp move upwards outweighs the high premium costs for many. We learned from the market reaction to the supply shock in 2022 that initial price moves can be dramatic and sustained longer than first anticipated. Back then, front-month prices rallied over 30% in just a couple of weeks, catching many off guard. That historical precedent suggests that in the current situation, assuming a quick resolution is a low-probability, high-risk bet. Recent announcements of a coordinated 60-million-barrel release from strategic petroleum reserves (SPR) by IEA members may place a temporary ceiling on prices. However, this volume is small compared to the disruption and will not solve the underlying physical bottleneck at the Strait of Hormuz. Traders should view SPR releases as creating opportunities to enter long positions at slightly lower prices, not as a sign the crisis is over. If the most aggressive scenario materializes, with conflict continuing into April, the disruption would extend for a prolonged period. This would make even longer-dated call options, such as those for September or December delivery, increasingly attractive. Such a scenario would imply a structural shift in energy supply chains, keeping prices elevated for the remainder of the year. Create your live VT Markets account and start trading now.

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Canadian headline inflation slowed to 1.8% in February. Year-on-year comparisons were affected by last year’s GST/HST holiday, which ran to mid-February, and the removal of the consumer carbon tax in April 2025, which lowered energy CPI. The Bank of Canada’s core trim and median CPI measures eased in February. They averaged 2.3% year-over-year, the slowest pace in almost five years.

Core Inflation Signals Weak Demand

On a three-month annualised basis, these core measures averaged 1% in February. This was below the Bank of Canada’s 2% target. Price pressures linked to supply issues remained for some grocery goods, including beef and coffee. The article links these to production disruption from adverse weather. The article says higher oil prices tied to ongoing Middle East tensions are expected to lift energy inflation in March. It also states an expectation that the Bank of Canada will hold the overnight rate at 2.25% at this week’s meeting. The recent inflation report for February shows a major split that we need to watch carefully. While the main inflation number is low at 1.8%, the core measures, which the Bank of Canada focuses on, have slowed to just 1% on a three-month basis. This weak internal demand is directly at odds with rising external pressures from supply chains and oil prices.

Market Pricing Versus Central Bank Caution

The Bank of Canada will likely hold its overnight rate steady at 2.25% this week, but the swaps market is already pricing in a nearly 60% chance of a rate cut by the June meeting. This creates a disconnect between the central bank’s cautious stance and the market’s dovish expectations. We believe the market may be getting ahead of itself, underestimating the Bank’s concern over new inflation shocks. We must factor in rising energy costs, with WTI crude oil recently trading above $95 a barrel for the first time in over a year. Looking back at the situation in 2022, we remember how persistent energy price shocks forced central banks to stay hawkish even as other parts of the economy cooled. The removal of the consumer carbon tax back in April 2025 is also making year-over-year energy comparisons difficult, giving the Bank another reason to wait. Given this setup, a potential strategy is to position for interest rates remaining higher for longer than the market currently expects. This could involve looking at Bankers’ Acceptance futures (BAX) for later in the year, which seem to be underpricing the risk that sticky, supply-driven inflation will delay any rate cuts. The Bank will likely want to see several more months of clean data before committing to an easing cycle. The clear tension between weak domestic inflation and high commodity prices suggests a period of higher volatility is coming. Traders could use options to profit from this uncertainty, such as buying straddles on interest rate futures. This allows a position to benefit from a significant market move, without having to bet on whether the dovish core data or hawkish oil prices will ultimately dictate the Bank of Canada’s next step. Create your live VT Markets account and start trading now.

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The Swiss franc fits many safe-haven features, including decent liquidity, a strong budget position, a current account surplus, and established institutions. Its strength has often caused problems for the Swiss National Bank (SNB). Swiss CPI inflation was 0.1% year on year, with an EU-harmonised rate of 0.5% year on year. With the policy rate at zero, the SNB has limited scope to cut rates, and it has said negative rates remain possible. Foreign exchange intervention is another option, but it carries risks and may not work as intended. US scrutiny also limits how far the SNB can go. In US-Swiss trade talks, reciprocal tariffs of 39% were announced by US President Trump and later reduced to 15% in November. Switzerland is on the US Treasury Monitoring List of currency policies, and this status was renewed earlier this year. In September, the US Treasury and Swiss authorities issued a joint statement saying neither side targets the exchange rate for competitive aims. It also said FX intervention is a monetary policy tool for the SNB to support monetary conditions and price stability. SNB Vice-President Martin said on March 4 that the SNB’s readiness to intervene is higher due to a recent political event, after a similar comment on March 2. The Swiss Franc is a classic safe-haven, supported by Switzerland’s strong budget, credible central bank, and rule of law. However, this strength has often been a major headache for the Swiss National Bank (SNB). This is because a strong franc pushes down on already very low inflation, making it hard for the bank to meet its price stability mandate. We remember how this played out around this time last year, in March 2025, during a period of political uncertainty. The SNB signaled a higher readiness to intervene in currency markets to weaken the franc. This was a clear message that even with rates at zero, they had tools they were prepared to use. Fast forward to today, March 16, 2026, and the situation remains delicate, though inflation has slightly improved to 0.7% year-on-year. While this is an uptick from the 0.1% we saw in early 2025, it still lags significantly behind the Eurozone’s 2.1% inflation rate. With the SNB policy rate at a mere 0.25% compared to the ECB’s 2.75%, the fundamental pressure for a stronger franc persists. This interest rate difference makes holding francs less attractive than euros, but any sign of global market stress sends capital rushing into Switzerland, overwhelming that factor. The SNB’s hands are still tied by the risk of being labeled a currency manipulator by the US Treasury, a persistent concern since the trade tensions of 2024. This means their interventions are likely to be tactical and aimed at preventing excessive appreciation rather than driving a sustained move lower. For derivative traders, this suggests that significant upside for the franc is likely to be limited by SNB action. Selling out-of-the-money call options on the CHF, particularly against the euro, could be a viable strategy over the coming weeks. This approach profits from the view that the SNB will effectively place a ceiling on the franc’s strength, causing volatility to dampen and options to expire worthless. Given the recent tensions in global equity markets, any dip in the EUR/CHF exchange rate toward the 0.9600 level will likely be met with verbal intervention or direct action from the central bank. We saw the SNB defend similar levels in the second half of 2025. Therefore, using option structures like bear call spreads on the franc allows traders to define their risk while betting on the SNB’s resolve to cap its currency.

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The NAHB Housing Market Index in the United States was 38 in March. This was above the forecast of 37. The index figure suggests homebuilder sentiment was slightly stronger than expected for the month. No further breakdown details were provided in the update. The March homebuilder sentiment index came in at 38, which was slightly better than the 37 we were forecasting. While any number below 50 shows pessimism, this small beat suggests the deep freeze in housing might be starting to thaw. This is a signal for us to pay close attention to housing-related assets for a potential short-term shift. We see this improvement happening even as the latest February 2026 CPI data showed core inflation remaining stubborn at 3.1%, making the Federal Reserve’s job difficult. However, 30-year mortgage rates have recently eased from their late 2025 peaks, dipping to an average of 6.4% nationally last week. This slight relief in borrowing costs is likely what’s giving builders a marginal boost in confidence. Looking back, we remember how sentiment struggled throughout 2025 to break above the low 40s due to persistent financing costs. The index bottomed out in the low 30s during the sharp downturn of 2023, so the current level of 38, while weak, confirms a slow and fragile recovery is underway. We are still a long way from the optimism we saw years ago, but the direction is no longer straight down. For the coming weeks, we should consider buying near-term call options on homebuilder ETFs like XHB and ITB. This data point, though small, could spark a relief rally in a sector that has been under pressure. It’s a tactical play on the idea that the worst may be over for builder sentiment. This resilient housing data could also delay expectations for the Fed rate cuts we have been pricing in for the end of 2026. If the economy’s most interest-rate-sensitive sector is stabilizing, the Fed will feel less pressure to ease monetary policy. Therefore, we might consider trades that benefit from interest rates staying higher for longer, such as puts on long-duration bond funds.

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USD/CAD traded lower on Monday near 1.3659, ending a three-day rise that had taken it to two-week highs. The US Dollar Index was near 100, down from 100.54 on Friday. Canada’s headline CPI rose 0.5% month-on-month in February versus 0.6% expected, after 0.0% in January. Annual CPI slowed to 1.8% year-on-year from 2.3%, below the 1.9% forecast. BoC core CPI increased 0.4% month-on-month, up from 0.2% in January. The annual core rate eased to 2.3% year-on-year from 2.6%.

Canadian Inflation Update

Focus is on the Bank of Canada rate decision on Wednesday, with the policy rate expected to stay at 2.25%. A Reuters poll on 13 March showed 25 of 33 economists expect rates to stay unchanged at least through 2026. Oil supply risks linked to the Strait of Hormuz have pushed prices higher, which can affect inflation and growth in Canada. Markets are also watching the US Federal Reserve, expected to hold rates at 3.25%–3.50% on Wednesday, alongside updated projections and the dot plot. Looking back to this time in 2025, we can see the market was dealing with low Canadian inflation and a major US-Iran conflict. Those factors created a complex picture where high oil prices supported the Canadian dollar, even as domestic data weakened. The situation today is quite different, and our strategy must adapt accordingly.

Strategy Update For Markets

The inflation dynamic has completely shifted from a year ago. While the annual rate was just 1.8% back then, the latest Statistics Canada report for February 2026 shows CPI is now running at a much firmer 2.8%, sitting persistently in the upper end of the Bank of Canada’s target range. This renewed price pressure makes it harder for the central bank to consider easing policy. Similarly, concerns about a deteriorating labor market have faded. The disappointing employment data from early 2025 has been replaced by a surprisingly resilient jobs market, with Canada adding over 40,000 jobs last month, beating expectations. This strength suggests the domestic economy has a stronger foundation now than it did a year ago. The geopolitical risk premium in the oil market has also diminished. With the US-Iran conflict having de-escalated, the supply disruptions through the Strait of Hormuz are no longer a primary driver of prices, and WTI crude has stabilized in the low $80s. This means the Canadian dollar is less supported by external war-related factors and more reliant on its own fundamentals. The wide interest rate differential between the Fed’s 3.25%-3.50% and the BoC’s 2.25% remains a headwind for the Canadian dollar. However, given the recent strength in Canadian inflation and employment, the narrative is shifting. We believe the market will begin to price out any chance of a BoC rate cut this year, which was a dominant theme in 2025. For the coming weeks, we should consider positioning for a cap on USD/CAD upside. The pair’s inability to hold gains above 1.36 suggests strong resistance, and the improving Canadian fundamentals support this view. Selling out-of-the-money call options on USD/CAD could be a prudent way to capitalize on range-bound price action. Create your live VT Markets account and start trading now.

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BNY’s Bob Savage reports a shift in the usual links between the US dollar, oil, and equities, as markets react to the Iran conflict and a week of central bank decisions. The dollar’s relationship with oil and with equities is described as having changed from past patterns. He notes that markets may be waiting for clearer information on how long the conflict will last. He also says trading may be aimed at a market low going into quarter-end.

Oil Gold Ratio Signals

Savage points to the oil/gold ratio as a key measure to watch for moves in the US dollar as leverage is reduced. The ratio peaked at 86 barrels of oil per 1 oz of gold and is now below 50. The article was produced using an artificial intelligence tool and reviewed by an editor. The usual links between the U.S. Dollar, oil, and stocks are not holding up, which complicates risk models as we approach St. Patrick’s Day and a week of major central bank decisions. A strong dollar no longer guarantees a specific reaction from equities or crude oil. This breakdown means old hedging strategies may prove unreliable in the coming weeks. A key indicator we are now watching is the oil-to-gold ratio, which has fallen from a peak of 86 to trade around 48.5 today. While this is a significant drop, it remains well above the historical average we saw before the market disruptions of 2025. This move signals a flight to the perceived safety of gold and could put pressure on the dollar as leveraged positions continue to be unwound.

Quarter End Positioning

With the Federal Reserve meeting next week, traders should prepare for volatility, especially since the last U.S. inflation report for February 2026 came in at a stubborn 3.4%. This reinforces the idea that the Fed will remain cautious, creating opportunities for options traders to play potential swings in bond futures and currency pairs. The Cboe Volatility Index, or VIX, has been reflecting this tension, hovering at an elevated level of 22. There is a sense that investors are positioning for a potential market bottom as the first quarter comes to a close. Traders might consider using derivatives to bet on a rebound in beaten-down equity indices. This could involve strategies like buying call options or establishing bull call spreads to capitalize on a potential relief rally, should geopolitical or central bank news turn positive. Create your live VT Markets account and start trading now.

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MUFG analysts keep a short EUR/USD position, linking euro weakness to higher oil and European natural gas prices and a larger negative terms-of-trade shock for Europe. They estimate that for every 10% rise in crude, EUR/USD falls about 0.7%. They say EUR/USD has dropped 3.0%–3.5% since the crisis began, which they relate to a 50% rise in crude oil prices. They also note EUR/USD has broken below 1.1500 support.

Scenario One Brent At Seventy Five To Eighty Five

In Scenario 1, Brent crude is put at USD 75–85 per barrel, including a USD 10 per barrel risk premium for a period. Under this outcome, EUR/USD is placed in a 1.16–1.18 range. In Scenario 2, crude at USD 110 per barrel is described as a near 60% rise from pre-conflict levels, implying EUR/USD near 1.1300. They set a 1.1200–1.1600 EUR/USD range. In a more severe case, crude rises 100% and European natural gas prices rise by more than that. EUR/USD is set at 1.0700–1.1300, with scope to reach 1.0700. We continue to hold a short EUR/USD trade view, as the risk in the coming weeks is skewed toward further dollar strength. Europe’s high dependency on energy imports makes the euro particularly vulnerable to the recent uptick in energy costs. With Brent crude now trading above $95 per barrel, up nearly 15% since the start of the year, the negative terms-of-trade shock for the Eurozone is intensifying.

Trade Expression And Key Levels

This situation reflects the patterns we identified back in 2025 when analyzing the 2022 energy crisis. Our regression models then showed a 0.7% drop in EUR/USD for every 10% gain in crude oil, a dynamic that appears to be reasserting itself today. Recent Eurozone industrial production figures have already shown a 0.5% contraction last month, suggesting the economy is struggling to absorb these higher costs. Even with the European Central Bank signaling a potential rate hike, this is unlikely to support the euro in a meaningful way. The U.S. economy appears more resilient, with the latest jobs report from February 2026 showing a robust addition of over 250,000 jobs, giving the Federal Reserve more room to maintain its tight policy. This policy divergence strongly favors the U.S. dollar over the euro. Given this outlook, derivative traders should consider strategies that profit from a decline in EUR/USD. Buying put options on the euro or establishing bear put spreads offers a defined-risk way to position for a potential move toward the 1.0500-1.0700 range. We see the current level around 1.0650 as a fragile support that is likely to break under sustained energy price pressure. Create your live VT Markets account and start trading now.

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US Industrial Production rose 0.2% month-on-month in February, following a 0.7% increase in January. Capacity Utilisation was 76.3%, the same as the revised January reading, according to the Federal Reserve. Major market groups had mixed results in February. Output of durable consumer goods rose 0.4%, with gains in automotive products, appliances, furniture, carpeting and miscellaneous goods.

Consumer Goods Output Breakdown

The index for nondurable consumer goods fell 0.1%. The non-energy component rose 0.3%, while the energy component dropped 1.4%. After the release, the US Dollar Index (DXY) weakened near 99.96. This followed four straight days of gains that took it to 100.54, a level last seen in May 2025. We see the slowdown in industrial production growth, from a strong 0.7% advance to just 0.2%, as a key signal for the Federal Reserve. This cooling, especially when combined with last week’s Non-Farm Payrolls report showing wage growth easing to its slowest pace in a year, reduces the pressure for further monetary tightening. Traders should anticipate a more dovish tone from the central bank in the coming weeks. The US Dollar Index’s retreat from the 100.54 level, a high we have not seen since May of last year, is likely to continue. This data suggests the economic outperformance that supported the dollar is fading. We should consider positioning for further downside through puts on dollar-tracking ETFs or by establishing long positions in euro call options.

Rates Volatility And Derivatives

Given this economic moderation, options on Secured Overnight Financing Rate (SOFR) futures are becoming attractive. Just last month, the market was pricing in a 40% chance of another rate hike by summer; as of today, that probability has fallen to less than 15%. This rapid shift suggests that betting on a stable-to-lower rate environment is the more probable trade. Equity index derivatives present a more complex picture, as the benefit of lower rate expectations is fighting against concerns of slowing growth. While the S&P 500 has gained nearly 3% since the start of March, the stagnant capacity utilization points to potential earnings weakness. This uncertainty makes options on the VIX index a prudent way to hedge against a potential spike in market volatility. In commodities, we expect a divergence based on these figures. The weaker dollar should provide a tailwind for gold, which has already risen 4% this month, making call options on its futures a potential opportunity. Conversely, the softer industrial output suggests weakening demand for industrial metals like copper, favoring bearish positions. Create your live VT Markets account and start trading now.

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