The eurozone trade balance, not seasonally adjusted, was €11.5 billion in February. This was below the expected €11.7 billion.

The reported figure was €0.2 billion lower than the forecast. The data refers to February and is presented on a non-seasonally adjusted basis.

The February trade surplus coming in below expectations at €11.5 billion signals a slight headwind for the Euro. Given this, we see potential in strategies that bet against a significant rally in the currency. Selling out-of-the-money EUR call options for the coming weeks seems prudent.

This data point reinforces the recent manufacturing PMI figures for March which, according to S&P Global, showed a contraction at 49.5, indicating a sluggish industrial sector. This weaker export signal is particularly concerning for German equities, heavily reliant on global trade. Therefore, we are considering protective puts on the DAX index as a hedge against a potential slowdown.

We are reminded of a similar pattern in late 2025, when weakening external demand preceded a dip in the Euro Stoxx 50 index. That period saw implied volatility, as measured by the VSTOXX index which averaged around 18, spike higher before the equity market fell. Based on that experience, buying calls on the VSTOXX could be an effective way to position for market choppiness.

This string of softer economic data, including the recent March inflation print that came in cooler than expected at 2.1%, reinforces the view that the European Central Bank may have to ease policy. As a result, we expect front-end interest rate futures to continue to price in higher probabilities of a rate cut. Positioning in Euribor futures could reflect these expectations for a more dovish ECB by this summer.

Global equities have rebounded to near-record levels, supported by optimism over strong Q1 earnings and improved risk sentiment linked to a US–Iran ceasefire. The rebound has helped markets recover most losses tied to the war.

S&P 500 estimates have improved, with market talk of 19% earnings and 16% margins in the US. Equity inflows rose during the week, driven by stronger earnings expectations and hopes of progress towards a peace deal.

Cross Asset Correlation Risk

Equities have shown unusually high correlation with the US Dollar, oil and bonds during earnings season. This lack of separation between asset moves has made equity allocation harder.

Estimated fiscal costs are 0.6% of GDP in the EU and 1–2% of GDP in Asia. Bond markets have not fully priced in new fiscal spending or inflation effects from a supply shock, and policy expectations have moved from easing towards tightening.

Among developed market central banks, markets still see the Fed as the only one likely to ease, with a 40% chance of one cut by year end. This has weakened the risk-free rate reference used in valuing equities across the US, Europe and Asia.

At the start of 2026, the rise in equity holdings was strongest in emerging market shares. A 15% drawdown from peak holdings leaves emerging markets open to further reallocations, especially if inflation and policy conditions limit earnings growth in Asia.

Hedging While Volatility Is Low

Global equities are pushing near-record levels, but the high correlation between stocks, the US Dollar, and oil creates a fragile setup. The CBOE Volatility Index (VIX) has fallen to 14.5 on ceasefire optimism, making it an opportune time to consider hedging strategies against a broad market downturn. This situation is unlike what we saw in mid-2025 when asset classes showed more independent movement.

Bond markets seem to be underpricing the risk from new fiscal spending and persistent supply-side inflation, as evidenced by the latest March 2026 CPI reading of 3.7%. This challenges the stability of the risk-free rate we use to value stocks. With markets only pricing a 40% chance of a Fed rate cut by year-end, uncertainty around policy is set to increase.

This policy confusion suggests preparing for sharp moves in either direction rather than betting on a single outcome. Strategies like long straddles or strangles on major indices like the SPX could be effective, especially ahead of the next Federal Reserve meeting. Such positions would profit from a significant price swing, regardless of whether it’s triggered by hawkish inflation data or a dovish policy surprise.

We see particular vulnerability in emerging markets, which rallied hard to start 2026 and still appear overextended despite a recent 15% pullback. If Asian inflation data continues to climb, it could block further earnings growth and trigger another sell-off. Buying puts on broad emerging market ETFs could serve as an effective hedge against this specific risk in the coming weeks.

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Financial markets are cautious on Friday, with participants avoiding risk while waiting for clarity on the next round of US-Iran negotiations. There are no top-tier economic data releases, keeping attention on geopolitics and central bank comments.

US President Donald Trump said on Thursday that Israel and Lebanon agreed to a 10-day ceasefire. Israeli Prime Minister Benjamin Netanyahu later said Israel has not agreed to withdraw from southern Lebanon, and the Israeli military said troops will stay in a 10-km deep security zone and warned residents not to return.

Geopolitical Developments And Market Focus

NBC News reported that a senior Iranian official said a permanent ceasefire would depend on adherence to Iran’s conditions and those of “the resistance”. The UK and France will chair a meeting on freedom of navigation in the Strait of Hormuz, with representatives from around 40 countries, and there are reports the second round of US-Iran talks could take place this weekend.

The US Dollar Index is steady above 98.00 in the European morning, after a marginal rise on Thursday, while US stock index futures are mixed. EUR/USD is near 1.1780 after a 0.15% fall, with Eurostat due to release February trade balance data.

GBP/USD fell 0.25% on Thursday and is slightly above 1.3500. USD/JPY dipped below 158.30 to a weekly low on Thursday, then ended slightly higher and is above 159.00, while gold is around $4,800 after little change.

Looking back to this time in 2025, we recall the cautious mood driven by US-Iran negotiations and a fragile ceasefire in Lebanon. That period of geopolitical tension served as a reminder of how quickly risk sentiment can shift. Today, while those specific headlines have faded, the underlying instability in the region remains a key factor.

The implied volatility from last year’s events stands in contrast to today’s market, where the VIX has been hovering near 15, well below its recent peaks. This suggests the market might be underpricing the risk of a sudden shock. We should consider buying cheap, out-of-the-money call options on the VIX as a hedge against complacency.

Options And Hedging Considerations

In 2025, we were watching the Strait of Hormuz, a critical chokepoint for global energy. Those tensions have eased, and Brent crude has since stabilized in a range between $85 and $90 per barrel. However, any renewed flare-up could cause a rapid spike, so using call spreads on oil futures could be a cost-effective way to position for upside risk.

The US Dollar Index was strong above 98 back then, acting as a clear safe-haven asset. The dollar’s dominance has only increased since, with the DXY recently pushing above 106 on the back of persistent inflation data from the first quarter of 2026. This trend suggests that being long the dollar against currencies with dovish central banks remains a viable strategy.

Gold’s behavior last year, holding steady at an extreme $4,800, showed its value during peak uncertainty. While it has retreated from those fictional highs, gold recently made new record highs above $2,400 per ounce in April 2026, driven more by central bank buying and inflation hedging. This shows the drivers for gold have shifted from acute crisis to chronic macro risk.

The pressure we saw on the Japanese Yen in 2025, with USD/JPY above 159, is a story we are seeing again today as the pair tests the 155 level. The risk of direct intervention from the Bank of Japan is now extremely high, a factor that was only a distant threat a year ago. Traders should be cautious with long positions and could use puts on USD/JPY to protect against a sharp, sudden reversal.

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Gold stayed under $4,800 for a third day on Friday in early European trading. Diplomatic activity on the Middle East conflict continued, while US-Iran friction remained due to an American naval blockade of Iranian ports, supporting the US dollar and weighing on gold.

A 10-day truce between Israel and Lebanon improved risk sentiment. US President Donald Trump said on Thursday that Iran was close to a deal, and the Wall Street Journal reported the two sides agreed in principle to hold fresh talks, with no time or venue set.

Market Drivers And Policy Signals

US PPI data earlier this week reduced inflation worries linked to higher energy prices. Traders are pricing about a 30% chance of a Federal Reserve rate cut by year-end, which has limited the dollar’s rebound from its lowest level since late February and helped gold recover from $4,768–$4,767.

No major US data is due on Friday, so attention turns to speeches from key FOMC members. Markets are also watching for possible US-Iran talks this weekend, and the pair is still on course for modest gains for a fourth straight week.

Technically, gold failed to clear the 200-period 4-hour SMA and needs follow-through selling below $4,765 to add downside pressure. RSI is near 50, MACD is below zero, resistance sits near $4,814 and $4,912, while support levels include $4,759, $4,606, and $4,416.

Given the conflicting signals, we see gold caught between a strong US Dollar and the possibility of de-escalation in the Middle East. The ongoing naval blockade of Iran keeps the dollar bid as a safe haven, which is a headwind for gold prices. However, the planned peace talks this weekend could sharply reverse that sentiment, making directional bets risky.

For derivative traders, this suggests focusing on volatility rather than direction over the next couple of weeks. The CBOE Gold Volatility Index (GVZ) has already ticked up to 21.5, reflecting the market’s nervousness ahead of the potential US-Iran talks. We believe options strategies like long straddles could be useful to capitalize on a significant price move, regardless of whether it’s up or down.

Positioning And Technical Confirmation

The softer Producer Price Index data we saw earlier in the week has reinforced our view that the Federal Reserve will remain on hold. Looking back at the latest CFTC data released last Tuesday, we noted that managed money accounts slightly reduced their net-long exposure for the first time in four weeks, indicating some profit-taking. This cautious positioning confirms that while geopolitical risk is high, the market is not yet willing to price out the supportive effect of a neutral Fed.

Technically, we should wait for confirmation before acting. We will watch the $4,759 level closely, as a sustained break below it could open the door for a deeper correction towards $4,606. We remember the whipsaw price action in oil markets during the initial Iran deal talks back in 2015, and we expect similar volatility for gold now.

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NZD/USD fell for a second day on Friday after pulling back from 0.5920–0.5925, its highest level since 11 March. The pair stayed below 0.5900 in early European trading, with limited momentum.

Market caution continued despite a 10-day truce between Israel and Lebanon, due to disruption risks in the Strait of Hormuz linked to a US naval blockade of Iranian ports. This supported the US Dollar after it recovered from its lowest level since late February, putting pressure on NZD/USD.

Dollar Support And Diplomacy Risks

The US Dollar’s advance was limited by reports of renewed diplomatic contact with Iran. US President Donald Trump said on Thursday that Iran was close to making a deal, while the Wall Street Journal reported that Washington and Tehran have agreed in principle to hold fresh talks, with no time or venue set.

Lower expectations for tighter US monetary policy also restrained the US Dollar. Traders are pricing in roughly a 30% chance of a Fed rate cut by year-end, which reduced demand for the Dollar and helped limit NZD/USD losses.

Attention now turns to speeches from influential FOMC members and further updates on US-Iran talks. Despite the latest dip, NZD/USD remains on course for a second weekly gain in a row.

We remember looking back at 2025 when the NZD/USD was caught in a tug-of-war below the 0.5900 level. Geopolitical risks in the Strait of Hormuz provided support for the safe-haven US dollar. However, shifting expectations around Federal Reserve policy and hopes for diplomacy created a ceiling, leading to choppy price action.

Comparing 2025 And Today

Today, we are seeing a similar dynamic with rising tensions in the South China Sea, which is again boosting safe-haven demand for the US dollar. We saw the VIX, a key measure of market fear, spike over 20 during the Hormuz incident in 2025, and it is currently elevated at 18. This suggests traders are pricing in higher risk, which typically benefits the dollar and weighs on risk-sensitive currencies like the Kiwi.

The crucial difference for us now is the clearer policy divergence between the central banks. While New Zealand’s latest quarterly inflation figure was a sticky 3.1%, putting pressure on the RBNZ to remain hawkish, this month’s US Core CPI print of 2.8% keeps the Federal Reserve in a more patient stance. This fundamental conflict between a hawkish RBNZ and a data-dependent Fed is likely to cap any major moves in either direction.

For derivative traders, this suggests that buying volatility could be a prudent strategy in the coming weeks. With geopolitical headlines creating the potential for sharp but short-lived moves, options strategies like long straddles or strangles on the pair could be effective. The market is now pricing in only a 40% chance of a Fed rate cut by July, down from 65% last month, highlighting the policy uncertainty that will continue to fuel volatility.

Given the opposing forces, selling options premium with defined risk may also be an attractive approach. Strategies like iron condors could capitalize on the expectation that the pair will remain range-bound, caught between geopolitical fears and central bank policy differences. In this environment, using options to clearly define risk seems more sensible than holding an outright directional spot position.

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The US Dollar Index (DXY) traded near 98.30 during European hours on Friday, rising for a second day but staying below 98.50. On the daily chart it remains inside a descending channel, which points to a bearish bias.

The index is below short-term averages, with the nine-period and 50-period Exponential Moving Averages now acting as resistance after being broken. The 14-day Relative Strength Index is around 40, showing weaker downside momentum that is still dominant.

Key Support And Bearish Channel Outlook

Support is near 97.50 at the lower edge of the channel. A break below the channel could push prices towards 95.56, the lowest level since February 2022, last reached on 27 January.

Resistance levels include the nine-day EMA at 98.58 and the 50-day EMA at 98.87, followed by the channel top near 99.10. A move above this area could shift price action towards 100.64, a nearly 10-month high set on 31 March.

We recall watching the dollar index struggle below 98.50 back in the spring of 2025, with a clear bearish bias dominating the charts. That descending channel held for a time, but the fundamental picture has since forced a major reversal. This presents a different set of opportunities for traders today.

Today, with the index trading firmly around 104.15, the landscape is entirely different. Recent data, such as the March core CPI coming in at a sticky 3.7%, has forced the market to reconsider the Federal Reserve’s path. We have seen expectations for 2026 rate cuts dwindle from three to just one, providing strong underlying support for the dollar.

Options Positioning For A Stronger Dollar

For derivative traders, this sustained strength suggests buying call options on the dollar index for the coming weeks is a viable strategy. Look for expirations in May or June to capture continued momentum from this hawkish Fed repricing. Implied volatility has ticked up, so consider using bull call spreads to cheapen the entry and define risk.

The dollar’s strength is also a story of relative economic performance, a trend we’ve seen solidifying since late 2025. With the latest Eurozone manufacturing PMI remaining in contraction territory at 45.8, the divergence between the US and European economies is widening. This makes buying put options on currencies like the Euro a compelling parallel trade to a long dollar position.

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Global oil production has fallen more sharply than in any oil crisis of the past 50 years, due to the blockade of the Strait of Hormuz and attacks on oil production and loading sites in the Persian Gulf region. The IEA estimates daily crude output has dropped by at least 10 million barrels since the start of the Iran War, or about 12% of global production.

Oil prices have risen less than in the 1970s oil shocks. The annual average oil price in 1974 was 250% higher than in 1973, and in 1979 a barrel of crude oil was about 125% above the previous year’s average, while this year the price is forecast to be at most 60% higher than the prior year’s average.

Energy Intensity And Economic Impact

Developed countries now use less oil per unit of output than 50 years ago, which reduces the loss of purchasing power from higher prices. In the first oil crisis, Germany’s oil bill rose by 2.5% of GDP and Japan’s by nearly 4%, while a $40 per barrel rise is projected to lift oil bills by 0.5% to 1% of GDP in four countries examined.

The outlook remains uncertain due to possible supply chain disruption and long-lasting damage to Gulf energy infrastructure. The article was produced using an AI tool and reviewed by an editor.

Looking back at the analysis of the 2025 Iran War, we learned that even a massive supply disruption didn’t trigger the catastrophic price spirals seen in the 1970s. Advanced economies have become more resilient due to lower oil intensity and the use of strategic reserves. This reshapes our approach, as the old playbook for trading oil crises may now be outdated.

In the coming weeks, this suggests that implied volatility on oil options might be structurally overpriced during geopolitical scares. The 2025 crisis saw prices rise by only 60%, far less than historical events, meaning many out-of-the-money call options expired worthless. We are currently seeing the CBOE Crude Oil Volatility Index (OVX) sitting near 35, well below its 2025 peak of over 80, indicating the market is slowly learning this lesson.

Rates And Cross Asset Positioning

The smaller-than-expected hit to GDP also has implications for interest rate derivatives. We recall that in late 2025, markets priced in aggressive central bank rate cuts that never fully materialized because the economic damage was contained. This suggests that during the next energy shock, there may be an opportunity in positioning against excessive dovish expectations in the Eurodollar or Fed Funds futures markets.

However, we must consider the warning about lasting damage to energy infrastructure, which creates a higher floor for prices. Recent reports from April 2026 indicate that several Persian Gulf loading facilities are still operating below pre-2025 capacity, keeping a risk premium in the market. This makes holding some long-dated oil futures or call options a prudent hedge against the slow pace of repairs.

Given that economies are less oil-intensive, we can look at relative value trades. In 2025, we observed that futures on consumer discretionary and technology indices recovered much faster than those tied to heavy industry or transportation. This pattern suggests that in periods of energy uncertainty, a pairs trade that is long a tech-focused index and short an industrial-focused index could perform well.

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BNY said US dollar moves are shaping Q2 diversification choices, as the Rest of World (ROW) equity index has shown a strong correlation with the USD index over the past year. It said markets outside the US have recovered to pre-war levels, alongside the USD, during a risk rally and renewed USD selling.

Since “liberation day”, the S&P 500 rose 26% and the ROW top 20 companies rose 13%. It also noted a sharp divergence in trends between the S&P 500 and the ROW index.

Dollar Direction Drives Allocation

BNY said central bank policy is affecting currencies, with European Central Bank expectations of two 25bp hikes in 2026 priced in. It said the Fed has a 40% chance of one cut, and this gap moved EUR from 1.15 to 1.18 this week.

It said emerging markets are facing a feedback loop linked to USD moves and central bank intervention risk. It added that further intervention could keep front-end rates tighter across global markets.

The article was produced using an AI tool and reviewed by an editor.

The path of the U.S. dollar is the most important factor for our diversification choices this quarter, as its direction will likely determine whether international or domestic stocks lead. We’ve seen US stocks outperform the Rest of World (ROW) index significantly since the market rally began. This relationship is clear, as the ROW index has shown a strong inverse correlation to the dollar index over the last year.

Trade The Divergence With Options

This divergence is being driven by central bank policy expectations. The market is now pricing in two 25 basis point hikes from the European Central Bank in 2026, while the odds of a Federal Reserve rate cut have fallen to around 30% following last week’s slightly higher-than-expected US inflation report. This policy split has pushed the EUR/USD pair from 1.15 towards 1.18.

For derivative traders, this means options on the U.S. Dollar Index (DXY), currently hovering around 105.5, could be a direct way to position for a move. A weaker dollar would likely benefit international equity ETFs, making calls on those instruments attractive. Conversely, a stronger dollar would favor continued US outperformance.

We should also consider options strategies that play on the gap between the S&P 500 and ROW indices. As we move deeper into the Q2 earnings season, CEO guidance on managing supply shocks and protecting margins will be crucial for market direction. Any sign of weakening US corporate outlooks could accelerate a rotation into international markets.

Emerging markets present a more complex picture due to the risk of central bank interventions to support their currencies. This keeps their local interest rates tight, creating a headwind for equities. Historically, we have seen that a strong dollar, like the one we observed for much of 2025, tends to weigh heavily on emerging market ETFs.

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GBP/JPY gave up a small rise after moving up to 215.65–215.70 in early European trading on Friday. It slipped back towards 215.30–215.25 and stayed within a three-day range, near flat on the day.

Sterling remained under pressure despite better-than-expected monthly UK GDP data released on Thursday. IMF forecasts dated April 2026 cut the UK’s 2026 growth outlook to 0.8%, down from 1.3% in October 2025, and described the UK as the most exposed G7 economy to effects linked to the Iran war.

Market Drivers And Near Term Context

The yen stayed weak amid concern about economic strain from disruption to shipping through the Strait of Hormuz. Reduced market pricing for a Bank of Japan rate rise in April also weighed on the yen, limiting downside in GBP/JPY.

The pair’s pullback has so far not confirmed a near-term peak. Earlier this week it reached around 216.00, its highest level since July 2008.

We see the GBP/JPY cross struggling near multi-year highs, indicating a potential stalemate that derivative traders can exploit. The recent price action is trapped in a tight range around 215.00, as conflicting economic pressures on both the Pound and the Yen prevent a clear breakout. This has pushed one-month implied volatility for the pair up to 13.5%, its highest level in over a year, suggesting the market is bracing for a significant move.

The drag on Sterling is significant following the IMF’s recent growth downgrade for the UK, cutting the 2026 forecast to just 0.8% from the 1.3% we saw in October 2025. This highlights the UK’s exposure to the conflict in the Middle East and the resulting supply chain issues. Traders anticipating further GBP weakness could consider buying put options with a strike price below the 214.50 support level.

Options Positioning And Range Strategies

However, pronounced weakness in the Japanese Yen is limiting any major downside for the pair. With the Strait of Hormuz seeing shipping disruptions, a key channel for roughly 25% of the world’s oil supply, Japan’s energy-import-dependent economy is under severe strain. This pressure, combined with signals that the Bank of Japan will likely delay a follow-up interest rate hike, keeps the Yen unattractive.

Given these opposing forces, a non-directional strategy seems prudent in the coming weeks. We believe buying a one-month straddle, which involves purchasing both a call and a put option at the same strike price, could be effective. This position would profit from a sharp price movement in either direction once the current consolidation breaks.

For those with a higher risk tolerance who believe the stalemate will persist, selling options premium is an alternative. An iron condor, with short strikes set outside the recent 214.00-216.50 range, could generate income from the elevated volatility. This strategy benefits if GBP/JPY remains range-bound as we approach option expiry dates in May.

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The S&P 500 closed at another record high, rising 0.26%, while the NASDAQ gained 0.36% and extended its winning run to 12 sessions, its longest streak since 2009.

Brent crude rose 4.70% to $99.39 per barrel, yet US equities continued to move higher despite the jump in oil prices.

Recent Rally Strength In Context

Deutsche Bank noted that the current S&P 500 advance over 11 business days is one of the strongest in recent years, with a 10.7% rise since 30 March used as a reference point.

The bank also pointed to March 2022 as the last time there was a larger 11-day move in the index, when gains were linked to expectations of an early ceasefire in the Russia-Ukraine war, before equities later weakened.

The piece says it was produced using an artificial intelligence tool and reviewed by an editor.

The S&P 500 is currently pushing record highs near 6200, and this market strength feels very familiar. We are looking back at analysis from mid-2025, which warned that a sharp rally then looked just like the false one in March 2022 that quickly reversed. The current environment presents a similar warning sign for us today.

Positioning For Downside Protection

Complacency seems to be setting in, as the CBOE Volatility Index (VIX) is sitting at a low 13.5, indicating very little fear among investors. The equity put-to-call ratio has also dipped to 0.65, showing that traders are buying far fewer protective puts compared to bullish calls. This lack of demand for insurance often appears just before the market sentiment shifts.

Underneath the surface, the latest Consumer Price Index (CPI) report came in slightly hotter than expected at 3.4%, a reminder that inflationary pressures have not been fully extinguished. This makes the foundation of the current rally feel fragile, much like the 2022 rally that was built on ultimately hollow hopes of a ceasefire. We saw a similar dynamic in 2025 when strong market gains ignored rising oil prices, a risk that was quickly repriced.

Therefore, we should consider using the current low volatility to buy downside protection before it gets more expensive. Purchasing out-of-the-money puts on the SPY or QQQ ETFs could provide an effective hedge against a sudden drop. This is a moment to be cautious, as history suggests such rapid, complacent rallies can reverse just as quickly.

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