Sterling rose 0.3% against the US dollar, reaching local highs last seen before the US/Iran conflict. It traded above 1.35 during Wednesday’s North American session.

Demand for UK debt issuance was described as strong, with large orders for both Treasury offerings and issuance from large financial institutions. UK domestic data releases were limited ahead of Thursday’s trade and industrial production figures.

Attention turned to Bank of England speakers, including Governor Andrew Bailey. Comments from MPC member Catherine Mann referred to being “active”, including the possibility of “a big rise or cut or long hold”.

On technical indicators, GBP/USD had a bullish RSI reading, pushing above 60. Support was placed below 1.3450, with limited resistance seen up to mid-February peaks around 1.37.

We are seeing the Pound gain strength, now trading around 1.3550 against the Dollar. These levels are the highest since before the market jitters caused by geopolitical tensions in the first quarter. This rally is supported by surprisingly strong demand for newly issued UK government debt.

The market is reacting positively to robust demand for UK gilts, with a recent 10-year auction showing a bid-to-cover ratio of 2.8, the best we’ve seen since late 2025. With UK inflation for March coming in at 2.9%, it remains stubbornly above the Bank’s target. This reinforces the view that interest rates will need to stay higher for longer.

While the data calendar is light until we see industrial production figures, the main risk comes from Bank of England speakers. Governor Bailey recently signaled a commitment to keeping policy restrictive, suggesting the BoE is in no rush to cut rates. This hawkish tone could provide further support for the Pound.

Technical indicators like the Relative Strength Index (RSI) are firmly bullish, suggesting upward momentum may continue. Given this, traders could consider buying call options with strike prices approaching the 1.37 level, which aligns with highs seen back in February. This strategy allows for participation in the upside while defining risk.

We see solid support forming below the 1.3450 mark. A sustained break below this level would challenge the current bullish outlook. Traders holding long positions might view this level as a point to reassess, or could use put options with strikes below 1.3450 to hedge against a potential reversal.

Megan Greene, an external member of the Bank of England’s Monetary Policy Committee, said UK economic activity was weak before the Iran war, according to Reuters on Tuesday. She also said the war’s effects are inflationary.

She said she was not convinced that the impact of negative supply shocks had fully worn off. She said inflation risks from the war matter, including possible second-round effects.

Greene said there will not be definitive evidence of second-round effects for some time, and it could take months. She said policymakers cannot simply look through negative supply shocks and that the assessment needs to be more nuanced.

The view is that UK economic activity was already weak, and the war is inflationary. We saw this in the latest figures, with Q1 growth stalling at 0.0% while March inflation unexpectedly rose back to 3.1%. This creates a difficult environment for the Bank of England, complicating any plans for rate cuts in the near future.

This suggests the market, which had been pricing in at least two rate cuts in 2026, may be too optimistic. The key concern is second-round effects, where higher energy and shipping costs feed into broader wage demands and price setting. We saw this play out during the energy crisis that started in 2022, which kept inflation persistent for much longer than originally anticipated.

For currency traders, this points towards heightened volatility in Sterling. A more hawkish central bank would normally support the pound, but a stagnating economy and geopolitical risk will weigh on it heavily. Therefore, buying options that profit from a large price swing in either direction on pairs like GBP/USD could be a prudent strategy.

UK stock indices, particularly the domestically-focused FTSE 250, face significant headwinds from this stagflationary pressure. We should anticipate that weak growth and the prospect of higher-for-longer interest rates will hurt corporate earnings. Positioning for a potential downturn here, perhaps through index put options, should be considered.

The most direct impact is on energy markets, as the conflict creates a classic negative supply shock. Brent crude has already surged past $115 a barrel, reminiscent of the spikes we witnessed in 2022 after the Ukraine invasion. Staying long on oil futures or related energy stocks seems to be the most direct way to trade this view in the coming weeks.

Gold (XAU/USD) rose on Tuesday as the US Dollar weakened amid renewed hopes of US-Iran talks. XAU/USD traded near $4,795, up 1.11%, but stayed within a two-week range.

Donald Trump said Iran had contacted the US and wanted to make a deal. This followed a US naval blockade targeting Iranian ports after weekend talks failed to reach a breakthrough.

Reports said a second negotiation round could take place in Islamabad later this week before a two-week ceasefire expires. Axios reported Pakistan, Turkey, and Egypt are involved in mediation efforts.

Disagreements over Iran’s nuclear programme continued, keeping uncertainty high. The US Dollar Index (DXY) fell to six-week lows.

Crude Oil edged down from recent highs, easing near-term inflation concerns, but disruptions in the Strait of Hormuz still constrained supply. Chicago Fed President Austan Goolsbee said inflation expectations were broadly anchored, but rate cuts in 2026 could become less likely without clearer cooling in inflation.

US March Producer Price Index data was softer than expected: headline PPI rose 0.5% MoM versus 1.2%, and was unchanged from the prior 0.5% (revised from 0.7%). Annual PPI was 4.0% versus 4.6%, up from 3.4%.

Technically, gold stayed below the 50-day SMA at $4,902 and above the 100-day SMA at $4,694. RSI was 50 and ADX was near 27, with resistance at $4,902 and support at $4,694.

Given the current deadlock, we should consider strategies that benefit from gold trading within a defined range. With gold caught between its 50-day moving average at $4,902 and its 100-day at $4,694, selling options premium through an iron condor could be a viable approach. This strategy allows us to profit as long as gold’s price remains stable and does not break out in either direction in the near term.

The upcoming expiration of the two-week US-Iran ceasefire is a significant catalyst that could shatter the current calm. We should prepare for a spike in volatility by looking at long strangles, buying both a call and a put option to capitalize on a sharp price move regardless of the direction. The Cboe Gold Volatility Index (GVZ), currently hovering around a tense 19, suggests the market is already pricing in a potential breakout from this consolidation.

Geopolitical developments will be the primary driver, and we have seen this pattern before. Looking back at the market reactions during the 2015 nuclear deal negotiations, a diplomatic success could weaken the US Dollar and push gold toward the $5,000 mark. Conversely, a failure in talks could trigger a flight to the safety of the dollar, potentially sending gold down to test support below $4,600.

The softer March Producer Price Index, which came in at 4.0% annually, has not been enough to convince us that the Federal Reserve will rush to cut rates. We remember the aggressive rate-hiking cycle of 2022-2023, and with core inflation still double the Fed’s 2% target, policymakers will likely remain cautious. This Fed hesitancy is putting a cap on gold’s potential rally for now, keeping it within its current range.

Kevin Hassett, a Senior Adviser for the White House, spoke to Fox Business on Tuesday about energy prices and interest rates.

He said the White House expects energy prices to fall quickly once the Strait of Hormuz is reopened.

He also said the outlook for the Federal Reserve having room to cut interest rates is expected to be very solid.

We see a very solid outlook for the Federal Reserve having room to cut rates if energy prices fall. With WTI crude recently trading over $95 a barrel, energy has been a key driver of the recent 3.8% inflation reading. This situation is holding the Fed back from the easing cycle many anticipate.

Considering this, we are watching for any sign of de-escalation in key shipping lanes like the Strait of Hormuz. A sudden resolution could cause a rapid reduction in energy prices, mirroring the pattern we observed in late 2025. Traders might consider buying put options on crude oil futures to position for such a sharp downturn.

A sharp decline in oil would directly impact inflation expectations, potentially giving the Fed the green light to begin cutting rates sooner than the market currently projects. This makes call options on interest rate futures, such as those tied to SOFR, an attractive strategy. These positions would gain value as the market reprices the probability of a mid-year rate cut from the current 5.50% level.

We recall a similar situation in the third quarter of 2025 when a sudden drop in oil prices led to a significant rally in Treasury futures. Back then, the market rapidly shifted its expectations for Fed policy within weeks. That period serves as a valuable playbook for how quickly sentiment can turn on a single catalyst.

Austan Goolsbee, President of the Federal Reserve Bank of Chicago, said Middle East tensions could delay an interest rate cut into 2026 if inflation stays high. He said policy could still involve rate rises, a hold, or cuts, depending on how conditions develop.

He said the timing depends on how long current pressures last and whether inflation improves. He said if inflation does not show progress, expectations for improvement would be pushed back.

Goolsbee said the Fed is watching oil markets and the effect of fuel prices on inflation. He said progress on core inflation would be encouraging even if headline inflation remains high.

He said the Fed aims to bring inflation to 2%. He added that if inflation is 4%, rates should not be expected to return to 2%.

He said there has been good news on housing inflation. He said the Fed would not usually tighten policy during a supply shock and that inflation expectations have so far remained anchored.

He said inflation expectations could become unanchored if petrol reaches $5 and stays there for months. He also said he respects Kevin Warsh and expects a focus on the Fed’s legal mandate, not electoral politics.

Given the ongoing concerns in the Middle East, the timeline for any potential interest rate cut in 2026 is now in serious doubt. With Brent crude having jumped to nearly $98 a barrel in early April, the pressure on headline inflation is increasing significantly. We have to consider the real possibility that rates will remain on hold for the rest of the year.

The latest inflation report for March 2026 supports this cautious view, as it showed little improvement. Headline CPI ticked up to 3.6%, and more importantly, core inflation remained stubbornly high at 3.7%, showing that underlying price pressures are not easing. If we don’t see progress on core inflation soon, any optimism for rate relief must be postponed.

For derivatives traders, this means that positioning for a straightforward rate cut is now a high-risk strategy. The focus should shift towards trades that benefit from sustained high rates or increased volatility in the bond market. Options on SOFR futures that protect against a “higher for longer” scenario are becoming more prudent.

We have seen this before, particularly when looking back at the stubborn inflation data throughout 2025. During that time, the market repeatedly had to push back its expectations for rate cuts as progress stalled. That experience suggests we should not underestimate the resolve to get inflation back to the 2% target, even if it takes longer than anticipated.

The primary risk we are watching is whether inflation expectations become unanchored. If oil prices push gasoline towards $5 a gallon and it stays there for months, the entire policy calculus could change. Under those circumstances, we must accept that discussions could shift from when to cut rates to whether we need to raise them again.

EUR/USD rose for a seventh straight session on Tuesday, trading near 1.1800 and up about 0.37%. The move came as the US Dollar weakened and risk appetite improved.

Reports suggested a second round of US–Iran talks could happen this week after President Donald Trump said Iran had reached out. The shift reduced safe-haven demand for the Dollar and pushed Oil prices down from recent highs.

Dollar Weakness Drives Euro Higher

The US Dollar Index (DXY) traded around 98.00, its lowest level since 2 March. The Dollar also fell after weaker US Producer Price Index (PPI) data for March.

Headline PPI rose 0.5% month-on-month, below expectations of 1.2%, and matched the prior 0.5% reading, which was revised down from 0.7%. Annual PPI rose 4.0%, below forecasts of 4.6%, and up from 3.4% previously.

Oil prices remain elevated overall, and markets are pricing in about two European Central Bank rate rises. ECB President Christine Lagarde said Europe is not at the epicentre of the fallout and that policy will stay data-dependent, with no tightening bias.

The IMF forecast euro area growth of 1.1% in 2026 and 1.2% in 2027, down from 1.3% and 1.4%. For the US, it sees 2.3% growth in 2026 versus 2.4%, and 2.1% in 2027 versus 2.0%.

Market Focus Turns To Policy Outlook

Given the recent price action, we see the EUR/USD pair breaking above significant resistance to reach 1.1800, a level not seen since the US-Iran conflict escalated early last year. This move is fueled by a weakening US dollar as geopolitical tensions appear to be easing and producer-level inflation shows signs of cooling. Traders should view this as a potential shift in the medium-term trend, favoring Euro strength over the dollar.

The soft US Producer Price Index is a key factor, suggesting the Federal Reserve can maintain its patient stance on monetary policy. However, we must note that the latest Consumer Price Index (CPI) data released for March 2026 showed headline inflation remains sticky at 3.5%, well above the Fed’s target. This divergence between soft producer prices and elevated consumer prices complicates the inflation picture and may temper expectations for dollar weakness if consumer-facing pressures persist.

The geopolitical optimism surrounding US-Iran talks is reducing the safe-haven appeal of the dollar, but this sentiment is fragile. We recall how quickly markets reacted in 2025 when tensions first flared, causing oil to spike and bolstering the dollar. Therefore, while the current trend supports long Euro positions, derivative traders should consider hedging with out-of-the-money EUR/USD puts to protect against a sudden breakdown in negotiations.

A critical divergence is forming between market expectations and central bank commentary from the European Central Bank. Interest rate futures currently imply a 70% chance of at least two 25-basis-point rate hikes from the ECB by the end of 2026, yet President Lagarde maintains a data-dependent and non-committal stance. This setup suggests that upcoming Eurozone inflation data will be exceptionally important in either validating the market’s hawkish pricing or forcing a dovish repricing that could cap the Euro’s gains.

Finally, the broader economic outlook from the IMF tempers some of the bullish enthusiasm for the Euro. With the forecast for euro area growth trimmed to just 1.1% for 2026, the ECB may struggle to justify the aggressive rate hikes currently priced by the market, especially if economic activity shows further signs of slowing. This underlying economic weakness is a significant headwind that traders must weigh against the current positive momentum.

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China’s March trade surplus fell to a 13-month low of $51.1bn, as exports slowed and imports rose. For 1Q26, the trade surplus totalled $264.3bn.

In US dollar terms, the 1Q26 trade surplus was down -2.5% year on year versus 1Q25. In renminbi terms, it was down -4.8% year on year, which is more relevant for GDP accounting.

Trade Surplus Signals Growth Drag

Imports increased as prices rose, with larger moves in technology-related items. Higher energy prices are expected to lift import values further in coming months.

A larger import bill would reduce the lift from net exports, which could weigh on China’s 1Q26 GDP. ING’s current GDP forecast for 1Q26 is 4.7%, and it is described as at risk if these trends continue.

The outlook also depends on external demand and US trade policy, with no new tariff shocks assumed but not ruled out. The item notes it was produced using an AI tool and reviewed by an editor.

Based on the recent trade data from March, we see a clear shift in China’s economic picture that demands attention. The trade surplus has unexpectedly dropped to its lowest point in 13 months, as exports slowed while imports, particularly for technology, have surged. This squeeze on net exports makes the initial 4.7% GDP growth forecast for the first quarter look optimistic and vulnerable.

This changing trade dynamic points toward potential weakness for the Chinese yuan in the near term. A smaller surplus means fewer US dollars are being converted into yuan, reducing support for the currency which we’ve seen begin to soften towards 7.28 against the dollar. Looking back at 2025’s relative stability, this new data suggests a fundamental reason for renewed pressure on the currency through the second quarter.

Market Positioning Implications

For equity markets, this signals a need for caution, and we should consider defensive positions on broad Chinese indices. The reduced contribution from net exports, a historically reliable growth engine, could weigh on corporate earnings and overall market sentiment. Hedging strategies, such as buying put options on major China-focused ETFs, may be prudent ahead of the official Q1 GDP release.

Conversely, the strength in imports highlights a different opportunity, especially in the commodity space. With Brent crude prices now holding above $95 a barrel, the rising cost of energy imports will inflate China’s import bill further. This sustained demand, alongside a reported 14% year-over-year jump in semiconductor imports last month, signals continued strength for global suppliers of energy and high-tech components.

The wild card remains the risk of new US tariffs, which could derail the positive outlook for external demand. This uncertainty suggests that market volatility is likely to increase in the coming weeks. We believe strategies that benefit from rising volatility could perform well, as the market digests this weaker domestic growth signal against a backdrop of resilient, but politically sensitive, global demand.

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Visa’s rise from the 2022 low is described as complete, with a five-wave advance ending wave (III) at $375. The stock then moved into a weekly correction labelled wave (IV).

The pullback is outlined as a corrective “double three” pattern. Price has already moved into the $300–$264 “Blue Box” zone referenced as an extreme area.

The analysis expects an upward reaction from this zone, with at least a three-wave bounce. A new wave (V) is projected to start from here, with a target range of $395–$427.

The approach advises looking for entries after a 3, 7, or 11-swing correction is completed. It also refers to a proprietary “Blue Box” method used to define areas for potential trades.

The weekly correction we analyzed in 2025 has materialized, with Visa finding significant support within the target $300 – $264 zone earlier this year. As of today, April 14, 2026, the stock has already begun its bounce from this area, confirming the underlying strength we anticipated. This rebound signals that the larger bullish cycle is resuming as wave (V) takes hold.

This technical rebound is strongly supported by recent fundamental data that has emerged in early 2026. Visa’s first-quarter 2026 earnings comfortably beat analyst estimates, driven by a 9% year-over-year increase in total payment volumes. The continued recovery in cross-border travel, now exceeding pre-pandemic levels, is providing a significant tailwind for high-margin revenue.

Furthermore, broad economic indicators are aligning favorably for the company. The March 2026 retail sales report showed a surprising 1.1% increase, indicating that consumer spending remains robust despite previous concerns over inflation. With inflation now moderating near the Fed’s target, the stable interest rate environment is supportive of continued credit and debit usage.

In the coming weeks, derivative traders should consider buying call options to capture the expected upward move towards the $395 target. The June and July 2026 expirations provide adequate time for the initial phase of wave (V) to unfold. Strike prices around the $325 level offer a compelling balance of leverage and probability.

For a more conservative income-generating strategy, selling bull put spreads is an attractive option. By selling a put option with a strike price below the recent lows, such as $295, traders can collect premium while defining their risk. This strategy profits as long as Visa’s stock price remains above this key support level through expiration.

This current price action is reminiscent of the pullback we saw in mid-2023, which was also followed by a sharp rally of over 20% in the subsequent months. The structural setup is nearly identical, giving us high confidence that a new impulsive rally is beginning from the recent lows. We see the path to the $395–$427 area as being well underway.

The Canadian Dollar made modest gains against a softer US Dollar, but underperformed other major currencies and weakened on cross rates. USD/CAD is estimated to be in equilibrium at 1.3527, with the gap narrowing mainly through US Dollar weakness rather than Canadian Dollar strength.

April seasonality for USD/CAD is described as strongly bearish. Recent political developments are described as having only a marginal effect on the currency outlook.

On the charts, USD/CAD turned more bearish after falling through trend support from the early March low. It also dropped below the 200-day moving average and the 38.2% retracement level near 1.38.

Losses are close to the 50% retracement of the March rise at 1.3745. Stronger short-term downside momentum points to risk of a move into the upper 1.36s, with 1.3690 marked as the 61.8% retracement level.

We are seeing the Canadian dollar gain some ground, but this is less about CAD strength and more about a broader US dollar decline. The slow correction of the CAD’s undervaluation will likely continue to be driven by a softer greenback. This trend is something we have been observing since the volatility we saw back in 2025.

The seasonal trends for April are strongly in our favor, providing a significant tailwind for a lower USD/CAD. Historically, looking back over the last 15 years, the USD/CAD pair has closed lower in April more than 70% of the time. This recurring pattern suggests a high probability of continued downside pressure through the end of the month.

Recent technical breaks reinforce this bearish outlook for the pair. The price falling through the 200-day moving average and the 38.2% retracement level around 1.3800 last week was a key signal. This gives us confidence that the downward momentum has strength behind it.

For the coming weeks, we should consider buying USD/CAD put options with late-April or mid-May expiries. Strike prices near 1.3700 appear attractive, aiming to capitalize on the expected move towards the next major support level. This strategy provides defined risk while targeting the clear downward trend.

This view is supported by a divergence in economic fundamentals, as US inflation figures released last week came in softer than expected at 2.9%, increasing bets on a Federal Reserve pause. Meanwhile, with WTI crude oil prices firming up over 5% in the past month to trade above $87 per barrel, the commodity-linked Canadian dollar has a solid base of support. The Bank of Canada’s neutral stance also contrasts with a potentially more dovish Fed.

The short-term trend momentum points towards a further slide, with the 61.8% retracement level at 1.3690 acting as the next obvious target. We should watch for price action around the 1.3745 level, but the path of least resistance appears to be lower. Any failure to hold this level will likely accelerate the decline into the upper 1.36s.

US equity futures edged higher on Tuesday, helped by gains in some tech shares. Sentiment improved after Iran said it would not stop vessels using the Strait of Hormuz, following two Chinese-listed vessels that passed through earlier without US action.

US stocks rose, led by consumer discretionary, communication and tech, while energy lagged as Brent crude fell below $98 per barrel. The S&P 500 continued to recover losses linked to the start of the Middle East conflict.

Markets Shift Toward Risk Assets

JP Morgan reported Q1 revenue up 10% year on year to $49.84bn, above the $49.1bn expected. Net interest income rose 9% to $25.48bn, with a 2026 net interest income forecast of $103bn, while the shares were down 0.4%.

Trading revenue rose by nearly $4bn to $23bn, and investment banking fees increased 28%. The bank pointed to consumer strength for now, but also risks from war-related factors and energy price swings.

Software shares rebounded, with Oracle up 12% on Monday and a further 6% early Tuesday. Oracle remains nearly 50% below its September peak, and said its technology is saving US consumers $300mn a year.

Sterling rose as the dollar eased, despite weaker UK data. The IMF cut the UK’s 2026 GDP forecast to 0.8% from 1.3%, while a 10-year Gilt auction priced at 4.9% versus a 4.76% market level, and UK 10-year yields were down 5 bps.

Strategies For Volatility And Hedging

With the geopolitical temperature in the Middle East cooling, we see a clear signal to re-engage with risk assets, particularly in the tech sector. The CBOE Volatility Index (VIX) has fallen below 15 for the first time since the conflict began, supporting the case for buying short-dated call options on tech-heavy indexes like the Nasdaq 100. This rally in names like Oracle shows a renewed appetite for software stocks that were heavily sold off in late 2025.

This rebound in tech feels familiar, reminding us of the sharp recovery in growth stocks during the second quarter of 2023 after a period of intense pressure. Oracle’s demonstration of real-world AI utility provides a fundamental reason for this optimism, suggesting the market is ready to reward innovation again. We should consider selling out-of-the-money put spreads on leading software ETFs to capitalize on this rising sentiment and decaying volatility.

The de-escalation in the Strait of Hormuz is putting direct pressure on crude oil, with Brent now under $98 a barrel. Recent data from the Energy Information Administration confirms this weakness, showing an unexpected build in US crude inventories of 2.8 million barrels last week. This fundamental pressure suggests buying put options on energy sector ETFs like XLE could be profitable as oil prices search for a new, lower floor.

JPMorgan’s cautious outlook on the American consumer should not be ignored, even as the broader market rallies. Federal Reserve data released last week showed revolving credit debt hitting a new record high of $1.5 trillion, confirming that household finances are stretched. This creates an opportunity to hedge the current optimism by purchasing longer-dated put options on consumer discretionary ETFs, which will pay off if this underlying weakness surfaces later this year.

In the currency market, the pound’s strength appears disconnected from the UK’s bleak economic reality. The UK just paid the highest yield since 2008 to borrow money, and the IMF has slashed its growth forecast, yet sterling continues to climb against the dollar. This divergence suggests the pound is being lifted by the global risk-on mood, creating a potential opportunity to short the currency via futures or options once this initial wave of optimism fades.

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