Canada’s merchandise trade deficit widened to $3.6 billion in January from $1.3 billion in December. Exports fell by 4.7% and imports fell by 1.1%. Monthly trade results remain affected by irregular shipments, including gold, motor vehicles, and aircraft. Net trade is currently subtracting from Q1 GDP growth.

Outlook For Near Term Trade

Part of January’s deterioration is expected to be reversed in February. Higher energy prices linked to the conflict in the Middle East are expected to lift Canada’s net exports in March. Early 2026 trade is taking place with a more stable trade policy backdrop. In January, 89.5% of exports were duty-free to the US, up from 89.2% in December. The labour market has shown per-person improvement, with the unemployment rate edging lower in recent months. Domestic demand has continued to grow on balance. Canada’s trade deficit widened to $3.6 billion in January, which is currently weighing on first-quarter GDP growth. This headline weakness was driven by a 4.7% drop in exports, creating some bearish sentiment. The initial data suggests a drag on the economy that could pressure the Canadian dollar.

Trade Driven Currency Strategy

However, we see the January weakness as temporary, heavily influenced by volatile gold and auto shipments. The key factor for the coming weeks is the conflict in the Middle East, which is expected to boost our net exports in March. Recent data confirms this, with West Texas Intermediate crude prices climbing above $95 a barrel, a level not seen since late 2024. This creates a potential opportunity for traders betting on a stronger loonie in the near term. The negative January report may be fully priced in, so we are looking at call options on the Canadian dollar expiring in late April or May. This strategy would profit from the expected improvement in the February and March trade figures. We remember how the currency lagged for much of 2025 as our interest rate policy diverged from the U.S. A strong rebound in energy exports could reverse that trend. The stable trade backdrop with the U.S., where nearly 90% of our exports are duty-free, provides a solid foundation for this outlook. Furthermore, the domestic economy remains resilient, with the unemployment rate holding steady at 5.7% and signs of growing demand. This strength, combined with recent inflation ticking up to 2.9% in February, limits the chance that the Bank of Canada will cut rates. This underlying support should provide an additional tailwind for the currency against the US dollar. Create your live VT Markets account and start trading now.

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Mojtaba Khamenei, described as Iran’s new Supreme Leader, delivered his first statement on Iranian television. He said attacks on nearby bases would continue and that Iran would not refrain from avenging those it calls martyrs. He called for unity and urged people to take part in Quds Day. He also thanked “the fighters of the resistance front”, calling them Iran’s best friends and linking the “resistance front” to the Islamic Revolution’s values.

Escalation Signals And Policy Direction

Khamenei said the closure of the Strait of Hormuz should continue as a way to pressure the enemy. He said all US bases in the region should be closed immediately and said those bases would be attacked. He said Iran sought friendship with neighbours and that it only targets bases. He also said Iran would seek compensation from enemies or destroy their assets. We see this direct threat to the Strait of Hormuz as the most critical factor for markets in the coming weeks. With nearly 21 million barrels of oil passing through the strait daily, representing about 21% of global petroleum liquids consumption, any disruption will cause an immediate and severe price shock. The market has not fully priced in a prolonged closure, which this statement now suggests is official policy. Given this, we should anticipate a sharp rise in crude prices far beyond the brief spike to $95 we saw last year in 2025. Buying call options on WTI and Brent crude futures is a direct way to position for this event, even with implied volatility already rising. The potential for a triple-digit oil price makes the cost of these options justifiable as the situation escalates.

Market Volatility And Hedging Implications

The impact on broader equity markets will be overwhelmingly negative, as a major energy shock will fuel inflation and slow economic growth. We remember the market sell-off and volatility spike that occurred in early 2022 following the invasion of Ukraine, and this situation could have a more direct impact on global energy supply. This makes protective put options on major indices like the S&P 500 a prudent strategy to hedge against a market downturn. Simultaneously, we should expect the CBOE Volatility Index (VIX) to climb significantly from its current level around 14. Call options on the VIX are an effective tool for traders anticipating this rise in market fear and uncertainty. The aggressive rhetoric targeting US bases ensures this will remain a source of volatility for weeks, not days. We also anticipate significant pressure on transportation and airline stocks, as rising fuel costs will directly erode their profit margins. Put options on these sectors could therefore prove effective. Conversely, defense contractors may see increased investor interest amid heightened regional conflict, making call options on these names a potential opportunity. Create your live VT Markets account and start trading now.

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WTI crude traded above $90 per barrel despite an announced release of 400mn barrels of strategic oil reserves and comments suggesting the conflict may be short. Prices remained elevated due to uncertainty about supply and shipping routes. The market remained uncertain about whether oil flows through the Strait of Hormuz could return to normal. Concerns persisted that assurances and reserve releases would not restore regular supply.

Supply And Shipping Uncertainty

The planned reserve release was described as a short-term measure that may not cover an estimated 25mn barrels per day loss of output linked to the conflict. Ongoing disruption to private-sector oil and gas shipments was cited as a risk even if fighting ends quickly. Longer-term measures, such as broader agreements or more structured ship escort arrangements, were referenced as possible ways to reduce worries about transport safety and continuity. The article notes it was produced using an AI tool and reviewed by an editor. The sustained price of WTI crude above $90 a barrel shows the market is ignoring short-term fixes like strategic reserve releases. The core problem remains the significant supply risk from the ongoing conflict impacting the Strait of Hormuz. We see that confidence in a quick resolution is extremely low among traders. February 2026 data from the IEA confirms a persistent global supply deficit of over 3 million barrels per day, justifying the current price strength. This deficit directly contradicts early assurances we heard back in late 2025 that the conflict’s impact would be minimal. Consequently, the market is pricing in a prolonged period of undersupply.

Positioning For Continued Strength

Given this outlook, we believe positioning for continued price strength through long call options on WTI futures is a primary strategy. Implied volatility is elevated, with the CBOE’s OVX index recently pushing past 55, a level not seen since the initial supply scares of 2025. This suggests options will be expensive, but the potential for sharp upward moves remains significant. The market structure has shifted into steep backwardation, where front-month contracts are much more expensive than later-dated ones. This is very similar to the market reaction we observed following the 2022 invasion of Ukraine, indicating an acute fear of immediate shortages. Traders could exploit this by using calendar spreads to bet on the persistence of this short-term panic. The risk is not just theoretical; it’s showing up in logistics costs. Just last week, we saw reports that shipping insurance premiums for tankers in the Gulf doubled overnight following another security incident. This directly impacts the landed cost of crude and reinforces the idea that supply chains will remain fragile for the foreseeable future. Create your live VT Markets account and start trading now.

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In a Truth Social post on Thursday, US President Donald Trump said the US benefits when oil prices rise. He linked the rise in oil prices to his launch of a war with Iran. He said the US is “the largest Oil Producer in the World, by far”, and that higher oil prices mean the US “make a lot of money”.

Oil Prices And Us Strategy

He also said his main aim is to stop Iran from getting nuclear weapons. He wrote that he would not allow Iran to have nuclear weapons or to “destroying the Middle East and, indeed, the World”. The administration has signaled that elevated oil prices are an acceptable, even beneficial, outcome of the current conflict. This means we should not expect policy moves aimed at lowering energy costs in the near term. Brent crude futures have already jumped over 15% in the last month, recently clearing the $110 per barrel mark, and this official stance will only add support. Given this, we believe the path of least resistance for crude oil is higher, as the geopolitical risk premium is likely to expand. Maintaining long positions in WTI and Brent futures or buying call options on energy ETFs is the most direct strategy. This is a significant shift from the market dynamics we observed in late 2025, which were driven more by supply and demand fundamentals than by open conflict. The ongoing war will keep market-wide volatility elevated, pressuring broader equity indices. The VIX has been stubbornly trading above 25, reflecting persistent market anxiety over the war’s potential to disrupt global supply chains and increase inflation. We see this as an opportunity to purchase protection through put options on the S&P 500 or by taking positions in volatility-linked products.

Sector And Currency Implications

We expect continued underperformance in sectors that are highly sensitive to fuel costs, such as transportation, airlines, and consumer discretionary companies. Conversely, defense contractors and domestic energy producers should continue to outperform the broader market significantly. For instance, the energy sector ETF, XLE, is up nearly 20% year-to-date, while the airline index has fallen by 12%. The combination of geopolitical safe-haven demand and the US position as a top oil exporter will likely strengthen the US dollar. This creates opportunities for long positions in the dollar index (DXY) against currencies of nations that are major energy importers. This dynamic reinforces the dollar’s strength that began to build during the initial escalations we witnessed last year. Create your live VT Markets account and start trading now.

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The Campbell’s Company (CPB) has been in a long, gradual decline. In March 2026, the share price fell by about 14% and reached a support area that has held since the early 1990s. This support zone sits around $20 to $23. It has acted as a floor through multiple market cycles, making the monthly close in this area a key point for price direction. A descending resistance trendline also shapes the long-term chart. It links the peak near $57 in 2000 to the high around $68 in 2016, and the price has not sustained a move above it. One outcome is that CPB holds the $20–$23 area on a monthly closing basis. If that happens, the next levels mentioned are $28–$30, with further scope towards the long-term trendline. Another outcome is a monthly close below $20. That would place the share price below a level last broken more than 30 years ago, with few clear chart-based levels below. With Campbell’s stock testing a support level not seen in decades, we are watching a critical moment unfold. The recent 14% drop this month was fueled by a disappointing late February earnings report, where management cited a 5% decline in soup category volume and rising input costs. This fundamental pressure is now meeting a major technical floor, creating a tense setup for the weeks ahead. The options market is reflecting this tension, with implied volatility on April and May contracts spiking into the 85th percentile. This tells us traders are actively betting on a significant price swing, making options more expensive but also confirming the importance of this $20 to $23 support zone. Our job is to position for whichever way it breaks, using this heightened volatility to our advantage. For a bullish rebound, we should be looking at call options if the stock can firmly hold above this support level by the end of March. Buying the May $22.50 strike calls would offer a leveraged bet on a recovery back toward the $28 area. A more conservative approach would be selling put credit spreads below $20, collecting premium while betting that this historic floor will not break. On the other hand, the bearish case is just as compelling and requires a clear plan. A monthly close below $20 would be a signal of a major breakdown with little support underneath. In that scenario, buying the May $20 strike puts would be the most direct way to profit from a continued slide. Looking back to how major supports failed during the broad market sell-offs in 2020 and 2022, we know that even long-term levels can give way under enough pressure. Given that the S&P 500 has pulled back nearly 4% in the last two weeks, the broader market weakness could provide the catalyst that finally breaks this support. The end-of-month close will be our primary signal for action.

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EUR/USD fell for a third day on Thursday, trading near 1.1525 after giving back this week’s earlier gains. Demand for the US Dollar rose as the US-Iran war continued, with the conflict in its thirteenth day. Oil prices increased as security risks grew in the Strait of Hormuz, a key route for global oil shipments. Reports said Iran targeted two oil tankers, adding to concerns about energy supply disruption.

Dollar Support From Data And Geopolitics

US data supported the Dollar, with Initial Jobless Claims falling to 213K for the week ending March 7 versus a 215K forecast. Housing Starts rose to 1.487M, above expectations of 1.35M. The US Dollar Index (DXY) traded around 99.50, up about 0.22% on the day. Higher oil prices raised inflation concerns and affected expectations for central bank policy. Markets fully priced an European Central Bank rate rise as soon as the July meeting. The Euro faced pressure as higher energy costs risk worsening the Eurozone outlook due to reliance on imported energy. In the US, markets priced about 25-30 basis points of Federal Reserve easing by December, down from more than 50 basis points before the war, according to CME FedWatch. Attention then shifted to the PCE Price Index report due on Friday, as inflation stayed above the 2% target.

Drivers Beyond The Geopolitical Premium

Looking back at the US-Iran conflict around this time in 2025, we saw a classic flight-to-safety rally in the US Dollar as tensions flared. Today, that geopolitical premium has completely disappeared, and the market is now driven by the widening economic gap between the United States and the Eurozone. This fundamental divergence should be the primary focus for positioning in the coming weeks. The energy price spike from that 2025 conflict appears to have inflicted more lasting damage on the Eurozone economy than on the US. For example, recent data for the fourth quarter of 2025 showed Eurozone GDP growth was a meager 0.1%, while German industrial orders have continued to stagnate into early 2026. This persistent weakness puts significant pressure on the European Central Bank to consider easing its policy later this year. Meanwhile, the US economy has remained remarkably robust, with the most recent Non-Farm Payrolls report for February 2026 showing a solid gain of 220,000 jobs. Core inflation, as measured by the Personal Consumption Expenditures (PCE) index, has also proven sticky, hovering around 2.8%, which gives the Federal Reserve little incentive to cut rates soon. This clear policy divergence, where the Fed stays firm and the ECB leans dovish, creates a powerful tailwind for the dollar. Given this outlook, traders should consider strategies that profit from continued EUR/USD weakness. One-month implied volatility for the pair is currently low, trading around 6.2%, making options relatively inexpensive compared to the highs seen during the conflict last year. This environment makes buying EUR/USD put options an attractive way to position for a potential move lower, targeting levels below 1.0700. Another approach is to use option spreads to reduce costs and define risk. A bearish put spread, which involves buying a put option and selling another at a lower strike price, could be effective in this low-volatility setting. This strategy allows traders to capitalize on a moderate decline in EUR/USD while limiting the upfront premium paid. Create your live VT Markets account and start trading now.

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AUD/JPY has risen to its highest level since 1990. The move has been linked to Australia being a net energy exporter and market pricing that the RBA could raise rates, potentially as soon as next week. The cross has also been supported by steady expectations for Bank of Japan policy. Current pricing suggests rate rises by several central banks, including the RBA, could be brought forward.

Key Risks For The Carry Trade

The outlook includes risks from prolonged geopolitical tensions and higher market volatility. In risk-off conditions, carry trades can unwind and trigger sharp pullbacks. If the crisis lasts and more central banks adopt a hawkish stance due to inflation risks, the yen could gain. This could be driven by lower liquidity, weaker risk appetite, and domestic Japanese savings moving back home. Next week’s policy meetings are expected to influence near-term direction for AUD/JPY. Ongoing tensions could limit further gains from current levels. The AUD/JPY is at its highest point in decades, driven by a widening policy gap. Recent data shows Australian inflation hit 3.8% in February, fueling bets on a rate hike from the RBA next week. Meanwhile, Japanese inflation dipped back to 1.9%, reinforcing the Bank of Japan’s dovish stance.

Trading Implications And Positioning

Australia’s position as a major energy exporter provides strong support for the AUD. Recent geopolitical flare-ups have pushed liquified natural gas futures up 8% this month, directly boosting the currency’s appeal. This energy story, combined with the market now pricing in an 80% chance of an RBA hike, is fueling the rally. However, we must be cautious as these same tensions increase market volatility. The VIX index has climbed over 15% in the past two weeks, a classic warning sign for risk assets. If this risk-off mood deepens, the Japanese Yen could strengthen as investors move capital back to safety. For derivative traders, this suggests a strategy of cautious optimism. While long calls could capture further upside from an RBA surprise, buying puts offers crucial protection against a sudden reversal. The elevated volatility makes options an effective tool for managing the risk of the carry trade unwinding. We only need to look back to the third quarter of 2025 for a reminder of how quickly things can change. A similar spike in global risk aversion saw the AUD/JPY drop a sharp 5% in a matter of days. This highlights how carry trades can rapidly fizzle when fear takes over the market. Create your live VT Markets account and start trading now.

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Nomura expects the ECB to keep the deposit rate unchanged at 2.00% at its 19 March meeting, despite the Iran conflict. It expects the Governing Council to wait for clearer evidence on effects on the real economy and inflation expectations. Nomura forecasts March 2026 HICP inflation will be 0.5–0.7 percentage points higher than it otherwise would have been. It raised its March 2026 forecast by 0.6 percentage points to 2.5% year-on-year.

ECB Rate Outlook

It also expects the ECB to stay on hold in April. Nomura says the ECB may still point to inflation stabilising around its target by the end of its forecast horizon in Q4 2028. Nomura expects the ECB to want proof of persistent inflation or higher inflation expectations before raising rates. It puts June as the earliest feasible date for a rise, assuming the conflict does not worsen beyond its recent peak. If the ECB does raise rates in response to the conflict, Nomura expects two increases. The article notes it was produced with help from an AI tool and reviewed by an editor. With the ECB meeting just a week away on March 19, we are not expecting a change to the 2.00% deposit rate. Last week’s escalation in the Strait of Hormuz has sent shockwaves through energy markets, but the central bank will likely want to assess the real impact first. Brent crude futures settling above $95/barrel yesterday for the first time since late 2025 will certainly be on their minds.

June Meeting Focus

We anticipate President Lagarde will sound dovish on the immediate outlook, stressing that inflation should stabilize by 2028. However, she will also be keen to avoid a repeat of the 2022 energy crisis, a hawkish signal that implies a readiness to act later. This mixed messaging suggests traders should prepare for a spike in short-term rate volatility. The real action for derivatives pricing is shifting towards the June meeting, which is now the first credible opportunity for a rate hike. We are seeing this reflected in the market already, as the 5-year/5-year inflation swap rate has ticked up to 2.40% this week. Any upcoming inflation data showing persistent price pressures will accelerate the pricing of a summer rate increase. Consequently, traders should consider positioning for higher rates in the second quarter, potentially through forward rate agreements or receiving fixed on short-dated swaps. Given the uncertainty, buying options that protect against a sharp rate rise, such as interest rate caps or payer swaptions, could be a prudent strategy. This is a very different environment than the stable rate outlook we had at the end of 2025. Create your live VT Markets account and start trading now.

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A Reuters poll released on 12 March says economists expect the Bank of England to keep interest rates unchanged at its March meeting. The poll finds 85% expect the bank rate to stay at 3.75% on 19 March, up from 35% in February. The median forecast points to the bank rate falling to 3.25% by the end of September. It is then expected to remain at 3.25% until at least the end of 2026.

Bank Inflation Outlook Before Iran War

In the Monetary Policy Report published on 5 February, the Bank projected CPI inflation would slow to 2.1% in 2026 Q2. That projection was made before the Iran war began. The Bank will meet on 18 March and announce its decision on 19 March. The next Monetary Policy Report is due at the 30 April meeting. The Bank of England sets monetary policy to meet a 2% inflation target, mainly by changing base lending rates. These decisions affect borrowing costs across the economy and can move the value of sterling. When inflation is above target, higher rates can support sterling; when inflation is below target, lower rates can weigh on it. Quantitative easing involves creating money to buy assets and can weaken sterling, while quantitative tightening reduces bond purchases and can support sterling.

Market Expectations Then Versus Now

Looking back at this time in 2025, the consensus was clear that the Bank of England would hold rates before starting a cutting cycle later in the year. That view was based on inflation projections that did not account for the subsequent geopolitical shocks. The expectation for rates to be at 3.25% by now has not materialized. The Iran war, which began in mid-2025, created a significant energy price shock that disrupted the disinflationary trend. We saw Brent crude prices spike to over $110 a barrel in the third quarter of 2025, feeding directly into higher transport and energy costs for British consumers. This unforeseen event made the Bank’s previous inflation forecasts obsolete. As a result, inflation has remained stubbornly high, with the latest CPI data for February 2026 coming in at 3.4%, well above the Bank’s 2% target. This is a stark contrast to the BoE’s projection from February 2025, which saw inflation falling to 2.1% by this quarter. The reality of persistent price pressures has completely altered the interest rate landscape. Consequently, the Bank of England never initiated the cutting cycle forecasted last year; the Bank Rate today stands at 4.0%. Recent Office for National Statistics data showed the UK economy stalled with 0% growth in the last quarter of 2025, raising concerns about stagflation. This puts the Bank in a difficult position ahead of its meeting next week. For the coming weeks, traders should be positioned for continued hawkishness from the Bank of England. Derivative markets are now pricing in a low probability of any rate cuts before the end of 2026. Any trades betting on lower rates, which seemed sensible in early 2025, now carry significant risk. This environment suggests looking at options to trade volatility around the Pound Sterling. While higher-for-longer rates are theoretically supportive for GBP, the weak growth outlook provides a strong headwind, creating uncertainty. Volatility in GBP/USD has picked up, with one-month implied volatility now trading near 8.5%, up from 6% at the start of the year. Traders should also monitor UK Gilt markets, as the yield on the 10-year Gilt has remained elevated around 4.3%. Interest rate futures can be used to hedge or speculate on the Bank holding rates firm through the summer. The focus must be on incoming inflation and wage data, as these will be the primary drivers of monetary policy. Create your live VT Markets account and start trading now.

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Rising oil prices are reducing eurozone household purchasing power, mainly through higher fuel costs. Driving behaviour has mostly returned to pre-pandemic patterns, so cutting mileage to offset higher pump prices may be limited. Only the pandemic years showed clear departures from the long-term average in driving distances, linked to widespread working from home. Fuel prices were not cited as the main reason for those changes.

Income Squeeze From Fuel Costs

As mileage normalises, a larger share of disposable income is expected to go on fuel. In Germany, this share is forecast to rise to 3.5% from 2.8% last year. Last year, the share of disposable income spent on fuel was around 2% in the Netherlands and 4.5% in Portugal. This suggests uneven pressure across countries as energy costs rise. Higher energy prices are also expected to add strain to consumer confidence, which is already low. The piece notes that pump prices tend to rise faster than they fall, affecting both confidence and purchasing power. With Brent crude oil prices now hovering around $95 a barrel, the squeeze on household purchasing power is becoming a primary market theme. The core issue is that driving patterns have returned to pre-pandemic norms, meaning consumers cannot easily cut back on fuel usage. This directly erodes disposable income, creating a significant headwind for the economy.

Trading Implications For European Markets

This pressure is already visible in sentiment data, with the latest European Commission figures showing consumer confidence dipping further to -18.5. Historically, when confidence is this low and household budgets are strained, spending on non-essential goods is the first to be cut. We anticipate weakness in sectors heavily reliant on discretionary spending. For traders, this points toward a bearish stance on consumer-facing European equities. Buying put options on automotive and retail sector ETFs could offer a way to capitalize on a slowdown in consumption over the coming weeks. Individual company stocks in these sectors are also likely to face downward pressure. The most recent macroeconomic data, which showed Eurozone retail sales falling by 0.4% in January, confirms this trend is already underway. This broader economic drag suggests short positions on major indices, like the Euro Stoxx 50, could be warranted. Protective puts on the index can serve as an effective hedge against a wider market downturn. This environment presents a dilemma for the European Central Bank, as the latest flash estimate showed headline inflation ticking up to 2.8% even as growth falters. This could delay anticipated rate cuts, creating opportunities in interest rate derivatives that bet on rates remaining higher for longer than currently priced in. This policy uncertainty could also weigh on the EUR/USD exchange rate. Looking back at the energy shock of 2022 from our perspective in 2025, we observed a very similar dynamic where elevated energy costs quickly translated into weaker consumption and a broader economic slowdown. That historical precedent suggests the market may be underestimating how rapidly this situation can impact corporate earnings. This makes positions that profit from increased market volatility, such as buying options on the VSTOXX index, appear attractive. Create your live VT Markets account and start trading now.

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