USD/JPY is trading near 159–160, with the pair close to multi-decade highs after Operation Epic Fury. It is described as a key resistance area while geopolitical risks and higher energy costs have supported the US dollar versus the yen. The Bank of Japan is expected to keep policy unchanged at its 19 March meeting while signalling a more hawkish stance as it continues towards interest rate normalisation. The BOJ may separate supply-driven inflation linked to the Strait of Hormuz from demand-led inflation associated with Shunto wage rises.

Key Risks And Support Drivers

A Trump–Xi meeting scheduled for 31 March to 2 April is cited as a possible route to ease Iran-related tensions. If tensions ease and oil prices fall, the current support level for USD/JPY could weaken, with added risk from potential Japanese Ministry of Finance intervention. The piece notes it was produced with the assistance of an AI tool and checked by an editor. It is attributed to the FXStreet Insights Team, which selects market commentary and adds analysis from internal and external sources. We recall looking at USD/JPY pressing against the 160 level this time last year, driven by the geopolitical flight to safety after “Operation Epic Fury.” The predicted Bank of Japan hawkishness and the diplomatic efforts that followed did eventually cool the rally, leading to a significant pullback. Now, with the pair once again climbing, traders should be preparing for similar dynamics as these historic highs come back into focus. The Bank of Japan did proceed with its policy normalization in mid-2025, but the pace has been glacial, leaving a vast interest rate differential compared to the US. With Japan’s core inflation recently ticking up to 2.4%, the market is questioning if the BoJ is acting fast enough, keeping the fundamental support for USD/JPY strong. This persistent policy gap is the primary reason the carry trade, which involves borrowing yen to buy dollars, remains so popular.

Options Positioning And Intervention Watch

This environment makes owning options attractive, as the risk of sudden, sharp moves is elevated. Looking back at Japan’s massive currency interventions in late 2024, we know the Ministry of Finance has a low tolerance for what it deems speculative moves above the 155 level. Therefore, buying yen call options or USD/JPY put options offers a defined-risk way to position for a surprise policy shift or direct market intervention. For those looking to stay with the uptrend, selling downside protection through put options can generate income, but this carries significant risk of a rapid reversal. A more prudent strategy could involve using call spreads to target a move toward the 158-160 resistance zone while limiting the capital at risk. This acknowledges the strong underlying trend but respects the increasing potential for a sharp correction driven by Japanese authorities. Create your live VT Markets account and start trading now.

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TD Securities forecasts the Reserve Bank of Australia will lift the cash rate by 25 bps in March and another 25 bps in May. This would unwind last year’s cuts and take the cash rate back to 4.35% by May. The reasoning cited includes GDP growth running above potential, a tight labour market, and rising inflation risks. Policy focus is described as leaning more towards inflation expectations than unemployment.

Australian Demand Signals Stay Firm

S&P Global’s Composite New Orders data show Australia’s new orders are expanding, listed as above 50, and are the highest among developed-market peers. NAB’s February Business Survey showed forward orders at their highest level since late 2022. The article notes limited spare capacity in the economy and wide variation in NAIRU estimates. Treasury is cited at 4.25%, while RBA testimony to the Economics Legislation Committee is cited at 4.6%. It also refers to developments in domestic data and Iran as factors that could affect the inflation outlook. The piece states that recent data have pointed to upside inflation information and reinforced the view that spare capacity is limited. Looking back at the analysis from early 2025, the call for the Reserve Bank of Australia to hike rates twice to 4.35% by May of that year was on the money. That move was driven by strong growth and a tight labour market, which forced the RBA’s hand. We are now seeing a similar setup unfolding in March 2026.

Trading Implications For Rates Vol And Fx

The Australian economy is once again showing signs of running hot, much like it did in early 2025. The latest Judo Bank Flash Composite PMI for March came in at a strong 52.4, indicating solid business expansion and order books. Meanwhile, the labour market remains incredibly tight, with the unemployment rate holding at a low 3.9% in the most recent report. This strength is creating renewed inflation problems, just as we saw back then. The latest quarterly CPI figure surprised many by coming in at 3.8%, a noticeable acceleration and still well above the RBA’s 2-3% target band. This data confirms that the economy has very little spare capacity left to absorb price pressures. For derivative traders, this means the market is likely underpricing the risk of further RBA rate hikes from the current 4.35% level. We believe traders should look at paying fixed on 2-year interest rate swaps. This position will profit if the RBA is forced to hike rates at least once or twice more this year to re-establish its credibility. In the options market, rising uncertainty points towards higher volatility. Buying call options on Australian 3-year bond futures offers a way to position for rising yields with a defined risk. This strategy would benefit from a hawkish shift in the RBA’s tone in the coming weeks. This environment should also be positive for the Australian dollar, especially as other major central banks are considering rate cuts. Traders could consider buying AUD/USD call options to position for a stronger currency. The widening interest rate differential between Australia and the United States makes this a compelling trade. Create your live VT Markets account and start trading now.

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Market sentiment turned risk-averse in the second half of the week as conflict in the Middle East widened. The US calendar on Thursday includes January Housing Starts, January Goods Trade Balance, and weekly Initial Jobless Claims. On Wednesday, the International Energy Agency said its 32 member countries unanimously agreed to release 400 million barrels of oil from emergency reserves. Later Middle East reports renewed supply concerns.

Middle East Conflict And Supply Risk

Iraq reportedly shut down oil port operations after Iran attacked two foreign oil tankers. Bahrain, Kuwait, and the United Arab Emirates reportedly intercepted Iranian missiles and drones, while Saudi Arabia said two drones heading towards the Shaybah oilfield were destroyed over the Empty Quarter desert. China has effectively banned refined fuel exports for March “with immediate effect”, Reuters reported on Thursday. The report linked the move to efforts to prevent a domestic fuel shortage tied to the US‑Israeli war on Iran. WTI traded at $90.40, up about 3.5% on the day, while Brent rose 3% to $94.40. The US Dollar Index held just below 99.50 as US stock index futures fell 0.7% to 0.9%. EUR/USD traded near 1.1550 and GBP/USD fell below 1.3400. USD/JPY earlier reached above 159.20, then eased to slightly below 159.00, while gold moved below $5,200.

Market Outlook And Positioning

The widening conflict in the Middle East has injected significant fear into the markets, setting a clear risk-off tone for the weeks ahead. We are seeing a classic flight to safety, with volatility expected to remain high. The CBOE Volatility Index (VIX) has already surged to over 28 this week, a level not seen since the banking turmoil in late 2025, and we expect it to stay elevated. With WTI crude pushing past $90, the immediate bias is to the upside despite the IEA reserve release, as war premiums are building rapidly. This situation is reminiscent of the initial supply shocks we saw in 2022, when prices briefly surged over $120 a barrel. We should be using call options to position for further gains while defining our risk, as a sudden de-escalation could reverse prices quickly. The US Dollar is the clear beneficiary of this mood, and we anticipate the Dollar Index will test higher levels in the near term. We saw the index rally well above 106 during the risk aversion of last year, showing there is significant room for it to run if this crisis deepens. Therefore, we are looking at short positions in EUR/USD and GBP/USD futures as the primary expression of this view. We expect continued pressure on US stock indices as capital flows from equities into safer assets like the dollar. During the onset of the conflict in Eastern Europe in 2025, major indices experienced a swift correction of nearly 10% in just over a month. To manage this downside risk, we are buying put options on the S&P 500 and Nasdaq 100. The Japanese Yen’s weakness, pushing USD/JPY toward 159, is a special situation driven by diverging central bank policy rather than typical risk flows. We see this powerful trend continuing and will avoid fighting it. Gold’s price, while elevated above $5,200, seems to have already priced in a significant amount of this risk, so we will be cautious about adding aggressive new long positions at these levels. Create your live VT Markets account and start trading now.

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USD/JPY rallied to just under 159.00, supported by higher US yields. The pair remains overbought, which may limit further gains. Over the next 24 hours, the pair may test resistance at 159.45 if 158.55 holds. Minor support is at 158.75, and a move towards 160.00 is seen as unlikely in the near term.

Near Term Outlook

Over the next 1–3 weeks, a break above 159.45 would turn attention to 160.00. A drop below 158.00, with earlier strong support noted at 157.20, would suggest fading upside risk. Over the next 1–3 months, USD/JPY may move above 159.45, but momentum is described as weak. Any further rise is not expected to challenge the 2024 high of 162.00, with a reference level of 157.45 dated 06 Mar 2026. The article notes it was produced using an AI tool and reviewed by an editor. It also states that FXStreet’s Insights Team selects market observations and adds internal and external analysis. The upward push in USD/JPY has continued, driven by higher US yields after last year’s surprising economic resilience. The latest US inflation data for February 2026 came in hotter than expected at 3.4%, reinforcing the idea that the Federal Reserve will not be rushed into cutting rates. This keeps the immediate focus on the 159.45 resistance level.

Options Strategy Considerations

Given this momentum, traders should consider buying short-dated call options with a strike price near 160.00. This strategy provides a defined-risk way to profit from a potential break above the 159.45 resistance. As of this week, implied volatility remains relatively contained, making option premiums affordable for this trade. However, we must note that conditions are deeply overbought, and the 160.00 level is a major psychological barrier that drew intervention from Japanese authorities back in 2024. Officials have already begun verbal warnings this week, increasing the risk of a sudden, sharp reversal. This makes protective put options or bear put spreads a sensible hedge against long positions. A more balanced strategy could involve a bull call spread, such as buying a 159.50 call while simultaneously selling a 160.50 call. This approach lowers the upfront cost and profits from a move towards 160.00, aligning with the view that a major surge beyond that point is unlikely in the next few weeks. The probability of the Fed cutting rates by June has now fallen below 40%, supporting the dollar but also capping extreme moves. The level of 158.00 remains a critical support floor, and a breach of it would signal that the immediate upside risk has passed. Selling cash-secured puts with a strike price below 158.00 could be a way to collect premium. This expresses the view that even if the pair pulls back, the fundamental interest rate difference will prevent a significant collapse. Create your live VT Markets account and start trading now.

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Brent crude traded above US$90 a barrel as supply concerns linked to Iraq and the Strait of Hormuz outweighed the International Energy Agency (IEA) plan to release 400 million barrels from emergency reserves. Reports said Iraq’s oil ports stopped operating after two tankers were targeted in Iraq’s waters. The IEA release totals 400 million barrels, the largest on record, compared with 183 million barrels released in 2022 after Russia’s invasion of Ukraine. The release size equals about 4 days of total global oil demand.

Strait Of Hormuz Supply Risk

About 20% of global seaborne oil moves through the Strait of Hormuz each day, or roughly 20 million barrels per day. Disruption there is described as hard to replace over a longer period. If 400 million barrels were released over 120 days, this would average about 3.3 million barrels per day. That is set against a possible 10–13 million barrels per day shortfall linked to Hormuz, after allowing for diversions such as Saudi Arabia’s East West pipeline. Looking back at the events of 2025, we learned a critical lesson about market forces. Even the largest-ever emergency oil release of 400 million barrels failed to suppress prices when faced with a major supply disruption. The risk posed by the Strait of Hormuz situation simply overshadowed the temporary supply injection, pushing Brent crude above the $90 mark. As of today, with Brent crude trading near $94 a barrel, that fundamental supply tightness persists. Recent data shows OPEC+ is holding its production cuts steady through the second quarter of 2026, while the latest Energy Information Administration (EIA) report forecasts global demand will grow by 1.4 million barrels per day this year. This combination of constrained supply and rising demand creates a firm floor under prices.

Derivative Strategy Implications

For derivative traders, this suggests any significant price dip in the coming weeks should be viewed as a buying opportunity. Bullish strategies, like buying call options with strike prices around $100 for the summer months, appear justified. Selling out-of-the-money put options could also be a sound strategy for collecting premium, based on the view that a substantial price drop is unlikely. We can draw parallels to the market reaction in 2022 following Russia’s invasion of Ukraine, where initial reserve releases did little to halt the price spike. Implied volatility remains high, which makes buying options more expensive but also increases the potential income from selling them. This elevated volatility underscores the market’s continued sensitivity to geopolitical news over coordinated supply releases. Create your live VT Markets account and start trading now.

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USD/INR was little changed on Wednesday, as hedging demand and foreign portfolio outflows weighed on the rupee. Better risk mood came from lower oil prices after reports the IEA may release record reserves. Traders also watched for possible RBI action to limit rupee weakness. Indian equities were weaker, with concerns about AI effects on the IT sector, though the Middle East war remained the main focus.

Rates And Market Positioning

India’s one-year and two-year OIS rates have risen more than 45 basis points each since the conflict began on 28 February. The 10-year bond yield rose 11 basis points through Monday before giving back part of the move, and swaps price in nearly two RBI hikes over 12 months. WTI traded near $82.30 a barrel in Asian hours. The IEA plan would be larger than the 182 million barrels released in 2022, while risks around the Strait of Hormuz could limit oil declines. The US Dollar may firm on safe-haven demand amid conflict updates, alongside upcoming US CPI and Friday’s PCE data. USD/INR traded near 92.30, with resistance at 92.81, support at 92.06 and then 91.30; the 14-day RSI stayed in the mid-60s. We recall how this time in 2025, geopolitical tensions sent USD/INR surging towards its all-time high of 92.81 on fears of a wider conflict. Today, with the pair trading in a tighter range around 84.50, the market’s memory of that volatility is key. Last year’s foreign portfolio outflows, which reached over $4 billion in March 2025, have since reversed, with net inflows of $22 billion recorded for the year ending February 2026. The threatened supply disruption through the Strait of Hormuz in 2025 was a major driver, but the IEA’s record reserve release ultimately capped the rally in oil prices. This provided crucial support for the Rupee, preventing a more severe depreciation. With Brent crude now hovering around a more stable $86 per barrel, implied volatility on INR options is significantly lower than the highs seen during the first quarter of 2025.

Lessons From Last Year

Looking back to 2025, swap markets were pricing in nearly two full rate hikes from the Reserve Bank of India. However, as inflation cooled faster than expected through late 2025, the RBI held rates steady, a stance it has maintained into this year. This divergence between market pricing and central bank action from last year should make us cautious about pricing in aggressive policy moves now. The safe-haven demand for the US Dollar during the 2025 conflict was a powerful, but temporary, force. Now, the focus has shifted back to interest rate differentials, with recent US non-farm payrolls data showing a robust 215,000 jobs added last month, keeping the Federal Reserve on a hawkish footing. This suggests that long-dollar positions via call options on USD/INR could be attractive, even without the geopolitical panic of last year. While the ascending channel from 2025 was broken later that year, the memory of the 92.81 peak serves as a psychological barrier. Currently, the pair is showing signs of range-bound activity, with implied volatility on one-month options falling to just 4.2%, well below the double-digit peaks of last year. Given this lower volatility, selling strangles with strikes set at 83.75 and 85.25 could be a viable strategy to collect premium in the coming weeks. Create your live VT Markets account and start trading now.

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On 2 March, the Swiss National Bank said it was “increasingly prepared to intervene” in FX markets, referring to the conflict in the Middle East. It pointed to the risk of rapid currency gains and safe-haven inflows that could threaten price stability. The franc has close trade ties with the eurozone, which can lead to fast price pass-through. Higher eurozone inflation can lift the euro’s real effective exchange rate (REER) versus the franc, as inflation gaps have stayed wide for the past few years.

Nominal Strength And Reer Dynamics

The franc has moved towards new nominal highs, while its REER has shown little change over the past two years. This may allow the SNB to accept some nominal franc strength. At its meeting next week, the SNB may focus on tactical steps to damp volatility rather than signal a wider policy change. Options mentioned include reducing liabilities by buying back bills or not rolling repurchase agreements. Market action could occur if the nominal move is severe, such as several big figures in a single session. Any intervention would be aimed at smoothing volatility in response to events. We recall that around this time last year, in March 2025, the Swiss National Bank signalled it was prepared to intervene in currency markets. This followed concerns over safe-haven flows into the Swiss Franc due to geopolitical tensions. The bank’s main goal was to manage any rapid appreciation that could disrupt price stability.

Implications For Traders And Volatility

The SNB’s tolerance for a strong franc was, and still is, supported by dynamics in the real effective exchange rate (REER). With February 2026 Eurozone inflation figures holding around 2.4% while Swiss CPI remains near 1.3%, the inflation differential continues to widen. This gives the SNB room to accept nominal franc strength without the currency becoming overvalued in real terms. Looking back, the bank’s actions in 2025 were tactical, focused on smoothing extreme volatility rather than dictating a specific exchange rate level. We saw this during a few sessions in the second quarter of 2025 where EUR/CHF saw sharp intraday moves, which were quickly dampened. This pattern reinforces the view that the SNB is not defending a line in the sand but is acting as a volatility brake. For traders in the coming weeks, this suggests that sharp, disorderly moves in the franc will likely be met with intervention. The SNB’s implicit backing makes selling short-dated volatility an attractive strategy. This is especially true as 1-month implied volatility on EUR/CHF is now trading at a relatively subdued 4.8%, down from the peaks of over 7% seen during the instability in early 2025. Therefore, derivative positions that benefit from range-bound price action or a slow, grinding appreciation of the franc are favorable. Selling out-of-the-money calls on EUR/CHF or USD/CHF could allow traders to collect premium, capitalizing on the SNB’s desire to prevent explosive volatility. The primary risk remains a sudden, large-scale event that could overwhelm the central bank’s tactical approach. Create your live VT Markets account and start trading now.

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GBP/USD fell for a third day and hit a weekly low near 1.3370 in the Asian session on Thursday. It later recovered a few pips to about 1.3400 and was down less than 0.15% on the day. The US Dollar rose as traders moved towards safer assets amid ongoing fighting in the Middle East. This demand for the Dollar added pressure to GBP/USD.

Dollar Demand Rises On Geopolitical Risk

Iran’s Islamic Revolutionary Guard Corps said it launched a joint operation with Lebanon’s Hezbollah against targets in Israel, Jordan, and Saudi Arabia. The report followed the most intense US-Israeli bombardments on Iran on Tuesday and pointed to a further escalation in the conflict between Israel-US forces and Iran. Looking back at the Middle East hostilities in 2025, we recall how the sharp flight to safety benefited the US Dollar. That event established a clear pattern of dollar strength during major geopolitical flare-ups, pressuring pairs like GBP/USD. This memory should guide our strategies, as markets now price in a higher risk premium for regional instability. In the coming weeks, we should anticipate that underlying volatility will remain elevated. This makes hedging with options a sensible approach, particularly buying put options on GBP/USD to protect against a sudden downturn. Data shows that during the 2025 crisis, one-month implied volatility for the pair jumped by over 30%, and while it has settled, it remains above the five-year average. The policy divergence between central banks will also be a key driver. With the US Federal Reserve signaling a more hawkish stance to curb persistent inflation, which sits at 3.1% as of last month’s data, the dollar has a fundamental tailwind. In contrast, the Bank of England is grappling with a weaker UK growth forecast of just 0.5%, making it less likely to match the Fed’s tightening cycle.

Energy Markets And Portfolio Hedging

We must also consider the impact on energy markets, given the regions involved in last year’s conflict. Brent crude futures, which spiked to over $110 a barrel during the 2025 escalation, are sensitive to any new developments. Holding long positions in crude oil call options could therefore act as an effective portfolio hedge against a repeat of those events. Create your live VT Markets account and start trading now.

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Standard Chartered strategist Nicholas Chia now expects the Reserve Bank of Australia to raise the cash rate to 4.10% at its 17 March meeting, after previously forecasting no change. The bank still expects another rise in Q2, lifting its terminal rate forecast to 4.35% from 4.10%, likely at the May meeting. The change follows firm activity indicators and RBA communication that leaned towards tighter policy before the blackout period. The note also points to higher inflation expectations, with limited tolerance for any move away from stable short-term expectations.

Oil Price Shock And Inflation Expectations

Part of the rise in expectations is linked to an oil price shock. The RBA may look through that factor, but it may still respond to broader shifts in expectations. The bank sees a high chance of a split board decision in March. It also says the 17 March call is close, with the main risk being the RBA holding rates to await more data such as quarterly core inflation. The article was created using an AI tool and reviewed by an editor. We are seeing a familiar pattern emerge as we approach the next Reserve Bank of Australia meeting. Looking back to this time in 2025, we saw a sudden pivot in expectations towards a rate hike due to firm economic activity and a worrying rise in inflation expectations. This created significant short-term volatility in the rates market.

Positioning Ahead Of The Rba Decision

The situation today, March 12, 2026, has echoes of last year, which warrants close attention. The latest monthly CPI indicator for February surprised slightly to the upside at 3.6%, and retail sales figures also beat forecasts, showing continued resilience in consumer spending. These are the same types of indicators that caused the market to reprice RBA expectations so quickly in 2025. This shift is reflected in interest rate futures, which now imply a roughly 30% chance of a rate hike at next week’s meeting, up from just 15% a week ago. Given this rising uncertainty, traders should consider using short-dated options to hedge against a hawkish surprise from the RBA. Relying solely on a continued pause in the cash rate now carries significantly more risk. However, we must also remember the outcome from March 2025, where the RBA ultimately chose to hold rates steady, despite the hawkish chatter, before hiking later in the second quarter. This historical precedent suggests the RBA board may again prefer to wait for more comprehensive quarterly data before acting. Therefore, strategies that profit from increased volatility, rather than a purely directional bet on a hike, may be the most prudent approach. Create your live VT Markets account and start trading now.

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Oil and Brent prices kept rising after reports that three commercial vessels were struck by projectiles near the Strait of Hormuz. Markets focused on the risk of disruption around the waterway. IEA members agreed to release a record 400 million barrels of emergency reserves. This was more than double the 182 million barrels released after the Russian invasion of Ukraine in 2022.

Market Seen Release As Temporary

The release did not stop gains, as the action was treated as short-term support rather than a longer-term fix for supply risks linked to the Strait of Hormuz. Concern remained about further supply shocks. President Trump said the IEA release would ease energy price pressures while the US continues its campaign against Iran. Oil market worries continued despite this statement. Reports said President Trump may invoke the Cold War-era Defense Production Act to support oil production off Southern California. US Interior Secretary Doug Burgum said the law is “absolutely” under deliberation to help a Houston-based company drill and to bypass state-level permit issues. The economic outlook was described as moving towards stagflation, with firm economic data offset by supply-side pressures. The article was produced using an AI tool and checked by an editor.

Looking Back From Early 2026

Looking back to 2025, the market correctly viewed the massive IEA emergency oil release as a temporary fix rather than a real solution. As of today, March 12, 2026, government data confirms over 80% of those 400 million barrels have already been absorbed by the market. This leaves the global supply system with a thinner cushion than it had a year ago. The geopolitical risk premium remains high, as tensions in the Strait of Hormuz have not abated since the vessel strikes last year. Just last month, February 2026 trade data showed a 12% increase in shipping insurance premiums for tankers passing through the strait, reflecting the market’s ongoing fear of a sudden supply disruption. We believe any further escalation will cause a sharp price spike that is not fully priced in. The US policy response that was deliberated in 2025 is proving to be a slow-moving solution. While the Defense Production Act was invoked to fast-track drilling, industry timelines show new significant production from these California projects is still over a year away. This domestic supply increase is a story for 2027, offering no relief for the tight market we face today. The stagflationary environment we worried about has become a reality, with the latest reports showing US GDP growth for the last quarter at a weak 0.7% while inflation remains sticky at 4.2%. Historically, this combination makes the market extremely sensitive to commodity price shocks. Therefore, we expect any upward move in oil to be magnified by these broader economic fears. Given this backdrop, we see opportunities in long-dated call options on Brent crude, which is currently trading near $97 per barrel. Current implied volatility is not fully capturing the risk of a sudden escalation in the Middle East. Buying calls provides a defined-risk method to gain upside exposure to the supply-side shocks we continue to anticipate in the coming weeks. Create your live VT Markets account and start trading now.

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