MUFG analysts say Asia FX is being driven by the US-Israel conflict with Iran and any disruption to energy supply. They add that differences in macro policy across countries are also affecting currency moves. They report that Asian currencies have seen modest depreciation against the Dollar so far. They warn that a longer war and higher energy prices could lead to sharper Asia FX weakness.

Asia Fx Drivers And Energy Risk

They say markets are currently pricing in a short-lived conflict and short-lived energy disruption. They add that a worse outlook could trigger a broader market reaction, including for Asia FX. They note some Asian currencies are near historical lows, and rising energy prices could worsen trade balances. They say this may lead some Asian central banks to intervene in FX markets, including possible verbal intervention from Japanese and South Korean officials to slow the depreciation of the JPY and KRW. They flag the US CPI on March 11 as a key data release. They say an upside surprise could support a higher-for-longer Fed stance and put further pressure on Asian currencies. The primary focus for us in the coming weeks is the conflict between the US, Israel, and Iran and its impact on energy prices. Recent reports of renewed tension in the Strait of Hormuz have already helped push Brent crude over 5% in the last week, with it now trading near $95 a barrel. The market seems to be betting that this is a temporary flare-up, similar to the short-lived price spikes we saw in 2025.

Key Watchpoints For Asia Fx

This assumption presents a significant risk, as any sign of a prolonged conflict could send energy prices soaring and trigger a sharp sell-off in Asian currencies. A sustained move for oil above the $100 mark, a level not held since mid-2024, would severely damage the trade balances of energy-importing nations. This creates an opportunity to position for higher volatility in the weeks ahead. Adding to this pressure is the upcoming US CPI report on March 11th. The market is expecting a 3.2% year-over-year figure, but after inflation proved much stickier than anticipated throughout 2025, an upside surprise is a real possibility. A higher inflation number would reinforce the Federal Reserve’s “higher-for-longer” message, further strengthening the US dollar against Asian currencies. Given these factors, we should prepare for bigger swings in currency pairs like USD/JPY and USD/KRW. The Japanese yen is already nearing the 155 level against the dollar, a zone that drew strong warnings from officials in late 2025. This suggests that using options to guard against, or profit from, a sudden depreciation in the yen or won could be a sensible approach. We must also be on high alert for potential central bank intervention, particularly from Japan and South Korea. Watch for any “verbal intervention” from officials, as this is often the first step before more direct action is taken to support their currencies. Such statements would create short-term trading opportunities and signal that currency weakness is nearing a critical point for policymakers. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

The Dow fell about 600 points (1.26%) to near 47,340, after a week in which it lost over 1,000 points. The S&P 500 traded near 6,750 (down 1.1%) and the Nasdaq near 22,550 (down 0.9%), while WTI rose above $89 and Brent topped $91. February non-farm payrolls came in at -92K versus a 59K expected increase, after January was revised to 126K. December was revised from 48K to -17K, meaning job losses in two of the past three months, and the miss was more than three standard errors from forecasts.

Labor Market Drivers And Revisions

The BLS linked much of the drop to healthcare, down 28K, tied to a Kaiser Permanente strike affecting over 30K workers in California and Hawaii. Federal payrolls fell 10K and are down 330K since October 2024, while construction lost 11K, manufacturing 12K, and transport and warehousing 11K. Unemployment rose to 4.4% from 4.3% and participation slipped to 62% from 62.1%. Average hourly earnings rose 0.4% month-on-month and 3.8% year-on-year, and average unemployment duration reached 25.7 weeks. January retail sales fell 0.2%, ex-autos was 0.0%, and the control group rose 0.3%. Markets moved rate-cut expectations towards July, with a 96% chance of no change on 18 March, as the 10-year yield rose above 4.17% and the 2s10s spread widened to 57 basis points. Goldman Sachs fell 3.4%, American Express 3.2%, and JPMorgan about 3%, while Caterpillar dropped 2.8%. Blue Owl fell 6%, BlackRock and Blackstone about 4%, while Exxon and Chevron rose over 1%, Occidental gained 3.3%, gold traded above $5,150, and the VIX rose nearly 10% to above 26. With the February 2026 jobs report coming in soft at just 15K this morning, we are seeing an echo of the shock -92K print from this exact week in 2025. The unemployment rate ticking up to 4.5% confirms a cooling labor market, putting downside risk on the table for the coming weeks. This setup looks very familiar and warrants a defensive posture in our derivatives books.

Volatility Hedges And Macro Positioning

The CBOE Volatility Index (VIX) is already up 8% to over 22, but we remember it surged past 26 this time last year on similar stagflation fears. This makes buying April VIX calls or out-of-the-money SPY puts an attractive way to position for a potential repeat of that market anxiety. For perspective, the VIX’s long-term average is closer to 19, so current levels suggest the market is pricing in trouble but may still be underestimating the potential for a sharp move. Oil is once again the main problem, with Brent crude futures for May delivery recently crossing $93 a barrel due to renewed supply disruptions in the Strait of Hormuz. Even with weak jobs, stubbornly high wage growth of 3.9% year-over-year makes it hard for the Federal Reserve to signal the aggressive cuts the market wants. The CME FedWatch tool now shows only a 40% chance of a rate cut by the June meeting, down from over 70% just a month ago. We saw in 2025 how financials and industrials led the selloff, and we should expect similar underperformance now as recession fears grow. Consider buying puts on the Financial Select Sector SPDR Fund (XLF) while simultaneously buying calls on the Energy Select Sector SPDR Fund (XLE) to play this divergence. The energy sector has already outperformed financials by 6% over the last three weeks, a trend that is likely to accelerate if geopolitical tensions remain high. The consumer is also showing clear signs of fatigue, which wasn’t the case just a few months ago. U.S. revolving credit debt hit a record $1.35 trillion in the latest quarterly data, suggesting consumers have less capacity to absorb high energy prices and sticky inflation. This environment makes puts on consumer discretionary ETFs like the XLY a logical hedge against a further slowdown in spending. Last year’s turmoil widened the 2s10s Treasury spread, and today we see that spread already tightening to just 45 basis points, a classic late-cycle signal of economic concern. This suggests growing recession risk, making it a good time to look at buying puts on high-yield corporate bond ETFs like HYG. As credit quality concerns rise with a slowing economy, the cost to insure against defaults will increase, making these positions profitable. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

US employment fell by 92,000 in February, below expectations. Earlier months were revised down by a combined 69,000, and the unemployment rate rose to 4.4% from 4.3%. Average hourly earnings increased by 0.4% month on month in February. They were up 3.8% year on year, compared with 3.7% in January.

Interpreting February Job Data

The report noted possible temporary effects from a strike and cold weather. These factors may have affected how the February figures should be read. The Federal Reserve is expected to keep interest rates unchanged at its meeting this month and at the end of April. It is expected to wait for more data on the labour market and inflation before changing policy. The report also referred to uncertainty linked to the Iran war, including possible effects on inflation. It said the Fed may face harder choices if labour market risks increase while inflation pressures rise. This surprise drop in employment fundamentally changes the near-term outlook. The market is now pricing in a greater than 95% chance the Federal Reserve holds rates steady through April, a significant shift from just last week. This suggests that options on short-term interest rate futures, like those tied to SOFR, could see their implied volatility decrease.

Positioning For Longer Term Volatility

This feels a lot like the situation we saw through much of 2025, when the labor market began to cool while inflation remained stubbornly above the Fed’s target. Back then, the market whipsawed as traders couldn’t decide whether to price in a recession or persistent inflation. This historical choppiness suggests caution is warranted before making any large directional bets. With the unemployment rate now at 4.4% and wage growth still high at 3.8%, the Fed is caught in a difficult position. This underlying tension, combined with geopolitical risks from the Iran conflict, means longer-term market volatility is likely underpriced, even with the VIX index currently hovering around 16. Traders might look at buying longer-dated options on major stock indices to protect against a large move in either direction later this year. The sharp drop in employment, especially if the one-off factors prove to be minor, signals a real crack in the economy’s foundation. This should prompt traders to consider defensive positions, particularly through buying put options on economically sensitive sectors like consumer discretionary ETFs. Bearish put spreads could offer a cheaper way to position for a potential downturn if the labor market continues to weaken in the March and April reports. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Turkey’s Treasury cash balance was -94.42B in February. The previous figure was -246B. The balance showed a smaller deficit in February than in the prior reading. The data compares two monthly cash outcomes for the Treasury.

Fiscal Deficit Narrows

The February treasury data shows a significantly smaller cash deficit, a strong sign that fiscal discipline is taking hold. This improvement, with the deficit shrinking to -94.42B from a much larger figure, suggests government spending and revenue measures are becoming effective. We should view this as a positive catalyst for Turkish assets in the near term. This fiscal tightening reduces pressure on the central bank and the Turkish Lira. As we saw through much of 2025 when the government struggled with larger deficits, a weak fiscal position often undermines the currency. Therefore, we should consider strategies that benefit from Lira strength, such as selling out-of-the-money call options on USD/TRY, anticipating the pair will face downward pressure. This positive data point aligns with the broader trend of improving risk perception for Turkey. Recent statistics show the country’s 5-year CDS, a key measure of default risk, has fallen below 290 basis points, a level not seen since early 2021. This indicates that the market is already rewarding the orthodox policy shift we’ve been observing since last year.

Equity And Rates Implications

For equity derivatives, the improved fiscal outlook is bullish for the BIST 100 index. Reduced government borrowing needs can lower bond yields and free up capital for the private sector, boosting corporate earnings and investor confidence. We should look at buying BIST 100 futures or call spreads to position for a potential rally in the coming weeks. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Rising conflict risk in the Middle East has led ING to raise its aluminium price forecasts. ING set out three disruption scenarios linked to shipping through the Strait of Hormuz, including one where prices briefly move above $4,000 per tonne before demand falls. The Gulf produces about 9% of global aluminium and a larger share of internationally traded metal. The region produces about 3% of global alumina and about 1% of bauxite, so smelters depend on imported raw materials. Scenario 1 assumes a short shipping disruption of about four weeks. Exports are delayed, some metal builds up on site, and output at Qatalum recovers slowly after a controlled shutdown. Scenario 2 assumes shipping constraints last for several months. Seaborne supply tightens further, and minor production cuts are possible if deliveries of raw materials remain restricted. Scenario 3 assumes a more severe disruption lasting about three months. ING describes a mix of lost production, stranded metal and wider logistics issues that could tighten availability and push prices briefly above $4,000 per tonne. We see significant upside risk for aluminum as conflict in the Middle East threatens the Strait of Hormuz, a critical shipping lane. With LME warehouse stocks hitting a two-year low of just 485,000 tonnes last week, any supply disruption will have an outsized impact. The current LME cash price of around $3,150 per tonne reflects this growing anxiety. The Gulf region is responsible for about 9% of global aluminum production, but its smelters are heavily dependent on imported alumina and bauxite. This reliance creates a major vulnerability, as any shipping delays directly threaten production continuity. We saw this begin to play out in the final quarter of 2025 when initial freight insurance costs started to climb. Given the potential for a rapid price spike, buying call options on LME aluminum futures for the coming months is a prudent strategy. This provides direct exposure to the upside while capping the maximum loss at the premium paid. A move towards the severe disruption scenario, where prices could briefly top $4,000/t, would make these positions highly profitable. We should remember the price action following the conflict in Ukraine back in 2022, when aluminum surged to a record high above $4,070/t on supply fears. The current situation with the Gulf’s concentrated production presents a similar, if not more acute, logistical chokepoint. Recent naval skirmishes reported near the strait last month only add to these historical parallels. We anticipate implied volatility will continue to climb, making selling puts a riskier strategy but buying straddles potentially attractive for those expecting a large price move. Traders should also watch the cash-to-three-month spread, which we expect to widen further into backwardation from its current $45/t level as consumers scramble for immediate supply. This indicates a very tight physical market.

Start trading now – Click here to create your real VT Markets account

Mary Daly, President of the Federal Reserve Bank of San Francisco, said one month of data is not decisive. She said inflation is above target and policy now involves balancing risks. Daly said both of the Fed’s goals carry risks at the moment. She said the jobs picture is not a clear read and the labour market looks vulnerable.

Interpreting Recent Payroll Signals

She said two payrolls reports should be averaged, and recent figures are below a 30,000 break-even level. She noted this is based on only a couple of months of data. Daly said wage growth should equal inflation plus productivity growth, which is higher. She said current wage growth does not show frothiness. She said the latest jobs report has her attention, and she is worried the labour market may be weaker than previously seen. She said strikes, snow, and population benchmarking make the report harder to interpret. Daly said an oil price shock would be felt by consumers and depends on how long the disruption lasts. She said the Fed needs more time to decide, could hold rates steady, and is not in a position to consider rate hikes.

Trading Volatility In A Two Sided Fed

She also said there is no evidence the economy is running hot. She said she is slightly optimistic that AI may lift productivity, but wants to see proof. The Federal Reserve is now signaling that risks are balanced, with both a weakening job market and above-target inflation causing concern. This creates significant uncertainty about the path of interest rates, suggesting a period of higher market volatility. We should therefore consider strategies that profit from price swings, such as buying options on major indices. The latest jobs report, which showed payrolls growing by only 25,000 in February against expectations of 180,000, is a major warning sign for the economy. However, with the most recent Consumer Price Index reading still elevated at 2.8%, the Fed is hesitant to cut rates to support employment. This conflict makes options on SOFR futures a useful tool for trading the now-wider range of potential outcomes for the next FOMC meetings. We remember the series of rate cuts in the second half of 2025, which were intended to put a floor under the job market and ensure a soft landing. The current weakness in hiring, however, calls that success into question and creates a difficult backdrop for equities. This environment is perfect for buying volatility, as the VIX has been hovering near historically low levels and seems poised to react to this new uncertainty. Adding to the complexity is the recent spike in oil prices, with Brent crude surging past $95 a barrel amid new geopolitical tensions. This directly pressures consumers and complicates the inflation picture, making the Fed even less likely to act decisively. We should watch options on crude oil, as the duration of this price shock is a critical unknown for the market. The Fed has made it clear that rate hikes are not being considered, but the choice is now between cutting rates immediately or waiting for more information. This “wait and see” stance means markets will react sharply to every incoming data point, from weekly jobless claims to the next inflation report. Expect sharp, sudden moves as new information shifts the odds of a policy change. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

US Retail Sales fell 0.2% month on month in January to $733.5 billion, the US Census Bureau said on Friday. This followed a flat reading in the previous month and was above forecasts for a 0.3% fall. On an annual basis, Retail Sales rose 3.2% in January. The report also said retail trade sales were down 0.2% from December 2025 and up 3.0% from last year.

Retail Sales Detail Highlights

Nonstore retailers recorded a 10.9% rise from last year. Food service and drinking places were up 3.9% from January 2025. After the release, the US Dollar gave back some gains, while the US Dollar Index stayed above 99.00. A correction dated 6 March at 14:56 GMT said the report was released on Friday, not Tuesday. This January retail sales report, while slightly better than expected, confirms a slowdown in consumer spending is underway. The series of interest rate hikes we saw throughout 2025 are likely starting to impact household budgets. We should therefore anticipate that the Federal Reserve might soften its hawkish stance in the coming months. The probability of a rate cut by the June meeting, according to CME Group data, has already ticked up to 35% from 20% just last week. This suggests traders could look at options on Treasury bond ETFs, positioning for yields to fall if this consumer weakness continues. We saw a similar pattern of speculation back in 2023 when the market tried to get ahead of the Fed’s policy pivot.

Market Positioning Implications

For equity traders, the report highlights a clear divide in the market. The weakness in overall sales is a negative sign for broad consumer discretionary ETFs, which could see traders buying put options as a hedge. The specific strength in nonstore retailers, however, supports a more bullish view on major e-commerce and tech-focused companies. This trend builds on what we observed in the last quarter of 2025, when consumer discretionary stocks underperformed staples by 4%. A pairs trade, going long consumer staples (XLP) while shorting discretionary (XLY), seems well-supported by this new data. The continued growth in online sales suggests call options on leading technology retailers remain a viable strategy. The US Dollar’s recent strength could also come under pressure following this report. The dollar index (DXY) rallied over 8% in 2025, driven primarily by the expectation that US interest rates would stay higher for longer than in other countries. This new data point directly challenges that core assumption. Given this, we should watch to see if the DXY can hold its ground above the 99.00 level. If it fails, it may be a good signal to begin buying call options on currencies like the Euro or Japanese Yen against the dollar. The next inflation report will be critical to see if this consumer slowdown is translating into lower prices. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Crude oil prices rose on Friday as the Middle East conflict continued. West Texas Intermediate (WTI) reached $85.05, its highest since 24 April, up more than 8% on the day and about 26% for the week. Brent rose 5.5% on the day to $87.80. The Financial Times reported Qatar’s Energy Minister Saad al-Kaabi said the conflict involving the US, Israel, and Iran could push oil to $150 a barrel.

Supply Disruption Risks

Al-Kaabi said that even if the conflict ended immediately, Qatar would need “weeks to months” to return to normal delivery cycles. US Energy Secretary Chris Wright said the US Navy would escort ships as soon as reasonably possible and that prices should fall in weeks rather than months. Federal Reserve Governor Christopher Waller said petrol prices may spike but this is unlikely to cause lasting inflation. He said a longer period of higher energy prices could create wider issues. After a Senate vote on Wednesday, the US House rejected a measure on Thursday to limit President Donald Trump’s ability to take further military action against Iran. Trump said Iranian officials had reached out to seek an agreement, while Iran’s Foreign Minister Abbas Araghchi said Iran had not asked for a ceasefire and had rejected talks with the US. We recall how the crisis in the Middle East last year sent WTI crude soaring by 26% in a single week. That event serves as a critical reminder that geopolitical flare-ups remain the most potent catalyst for sharp, unexpected moves in energy markets. The memory of that volatility should anchor every strategy we consider in the coming weeks.

Trading Strategies For Volatility

Currently, the market feels deceptively stable, but fundamentals point to underlying tightness. The latest Energy Information Administration (EIA) report shows U.S. crude oil inventories have drawn down by 3.7 million barrels, tighter than analysts expected. With OPEC+ signaling it will maintain its production cuts through the next quarter, any disruption to supply could have an outsized impact on price. Given this backdrop, traders should look at volatility as an asset class to be traded. Buying long-dated call options on WTI or Brent futures offers a defined-risk way to position for a sudden price spike, similar to the one we saw unfold in 2025. We can look at the CBOE Crude Oil ETF Volatility Index (OVX), which jumped over 40% during past conflicts, as a benchmark for how quickly the price of insurance can rise. We must also respect the potential for rapid reversals, just as the US Energy Secretary predicted last year, even if his timing was off. History shows that war-related price spikes can collapse on news of a ceasefire or a release from strategic reserves. For this reason, using put spreads to bet on a downturn or selling covered calls against existing long positions can provide a valuable hedge against a sudden thaw in tensions. The political rhetoric from last year, with conflicting statements from US and Iranian officials, is a lesson in itself. We should treat official statements with caution and focus on verified actions, such as naval movements or changes in oil tanker flows. The historical pattern, from the Gulf War in 1990 to the events of 2022, shows that the market ultimately responds to barrels actually removed from supply, not just threats. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

ABN AMRO expects industrial production in the eurozone and Germany to rise again, supported by improving domestic demand. It also points to stronger defence-related activity in Germany as a supporting factor. The bank forecasts German factory orders to fall in January after a surge in the final months of 2025. It still describes manufacturing as being on a recovery track.

Eurozone Manufacturing Recovery Outlook

ABN AMRO notes that higher energy prices are creating new headwinds that may slow the pace of the recovery. The article says it was produced using an artificial intelligence tool and checked by an editor. We are seeing a cautious recovery in Eurozone manufacturing, but this is happening alongside new risks from rising energy prices. Looking back from our current position in March 2026, the surge in German factory orders at the end of 2025 did indeed pull back, with data for January showing a notable drop. However, the latest Eurozone manufacturing PMI reading for February came in at 47.8, an improvement from January but still below the 50-point mark indicating growth. This mixed outlook suggests that outright bullish positions on indices like the DAX may be too risky. We believe a better approach is to use options to generate income, such as selling covered calls or structuring bull put spreads on major European indices. These strategies can profit from a slow grind upwards or even sideways movement, fitting the current environment of a fragile recovery. The tension between a potential recovery and the impact of higher energy costs creates uncertainty, which often leads to higher price volatility. For traders anticipating a significant market move but unsure of the direction, long straddle positions on key industrial ETFs could be effective. This allows profiting from a sharp break higher or lower in the coming weeks as the market digests these conflicting signals.

Sector Strategy And Volatility

We continue to see strength in specific sectors, especially defence, as was anticipated last year. Call options on companies like Rheinmetall, which has seen its stock price climb over 80% since early 2025, remain attractive given sustained geopolitical spending. Conversely, we would be cautious with energy-intensive sectors like chemicals, where rising Dutch TTF natural gas prices, now trading near €45 per megawatt-hour, could pressure margins. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

GBP/JPY was little changed on Friday, trading near 210.70 and staying within the week’s range. The pair was set for a third weekly gain, supported by wide interest-rate gaps between the UK and Japan. Oil prices have risen amid the US-Iran conflict, adding to inflation concerns. Supply disruption risks through the Strait of Hormuz have added a risk premium to energy markets.

Central Bank Expectations Shift

Markets have reduced expectations for near-term Bank of England easing. Futures now price a 20–30% chance of a 25 bps cut in March, down from about 80% before the conflict. Traders also no longer fully price two BoE cuts in 2026. They see less than a 50% chance of one 25 bps cut by the end of the year. For the Bank of Japan, expectations for the next rate rise have moved back as officials weigh the impact of higher oil prices on growth. Japan’s reliance on imported energy makes it more exposed to higher fuel costs. Markets expect the BoJ to keep rates unchanged at the March meeting. The next hike timing remains unclear.

Policy Signals And Market Risks

Reuters reported Seisaku Kameda said the BoJ could raise its policy rate to 1.0% from 0.75% as early as April if tensions ease this month. If the conflict continues and volatility stays high, he said a move may be delayed to around June or July. Japan’s government said it is monitoring yen moves. Finance Minister Satsuki Katayama said officials will “respond nimbly” and that BoJ policy targets price stability, not exchange rates. The escalating US-Iran conflict is the primary driver we must watch, pushing oil prices higher and creating broad market uncertainty. Brent crude futures have now surged past $115 per barrel, a level not seen since the energy crisis of 2022, directly impacting global inflation outlooks. This persistent geopolitical risk keeps the pressure firmly on central banks and their upcoming decisions. For us, this means the Bank of England is very unlikely to cut interest rates in the near future, which continues to support the Pound. The latest UK inflation data for February surprised many by rising to 3.1%, reinforcing the view that the BoE will remain on hold to combat these price pressures. Consequently, the market has almost completely priced out any significant rate cuts for the remainder of 2026. Conversely, these high energy costs are damaging for Japan’s economy, making it difficult for the Bank of Japan to justify raising its own interest rates. As a major energy importer, the sustained surge in oil acts like a tax on Japanese consumers and businesses, likely delaying the BoJ’s next move until at least mid-year. This widens the already large interest rate gap between the UK and Japan, making the GBP/JPY carry trade very compelling. Given this environment, buying GBP/JPY call options for the coming weeks appears to be a logical strategy. This allows traders to profit from any further rise in the currency pair while capping the potential loss to the premium paid on the option. It is a defined-risk way to maintain a long position as ongoing tensions could easily push the pair higher. However, we must also be prepared for a sudden reversal, making it wise to consider protective put options as a hedge against sharp downturns. A surprise de-escalation in the Middle East or direct currency intervention from Japanese authorities could trigger a rapid fall in GBP/JPY. Looking back to 2025, we recall that Japanese officials acted decisively when the currency weakened past key levels, a risk that remains very real today. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account