GBP/JPY fell for a second day in early European trading on Tuesday. It moved back toward the overnight swing low. The pair stayed in a one-week range and traded just above the mid-212.00s. Japan’s snap election result on Sunday reduced domestic political uncertainty. At the same time, Japanese officials issued fresh warnings about possible intervention. Expectations that the Bank of Japan will keep normalising policy also supported the yen, which added pressure to GBP/JPY. Sterling weakened because of UK political risk. This followed the resignation of Prime Minister Keir Starmer’s chief aide, Morgan McSweeney. Scotland’s Labour leader also called on Starmer to resign after fallout linked to the Jeffrey Epstein scandal. Markets also raised expectations for another Bank of England rate cut. This contrasts with the Bank of Japan’s more hawkish tone. However, worries about Japan’s fiscal position—tied to Prime Minister Sanae Takaichi’s spending plans—plus a positive risk mood could limit yen gains and slow further falls in the pair. Looking back at market sentiment in 2025, we can see the early signs of weakness in GBP/JPY when it traded in the 212.00s. That pressure later pushed the cross lower. As of today, February 10, 2026, the pair is consolidating near 205.50. The main driver of the decline—central bank policy divergence—remains in place. The Bank of Japan’s hawkish tilt, once only an expectation, became clearer after a landmark 25-basis-point rate hike in summer 2025. Japan’s national core inflation has stayed above the 2% target, most recently 2.3% in January 2026. We expect the BoJ to keep a tighter tone, which continues to support the yen. By contrast, the Bank of England met expectations by cutting its main rate twice in late 2025, bringing it to 4.75% as the UK economy slowed. Political instability around the Prime Minister has eased since last year. Still, UK inflation is sticky at 3.1%, which limits how decisively the BoE can move. As a result, the pound has limited fundamental support against a stronger yen. For derivatives traders, this backdrop favours selling rallies in the cross. Implied volatility has fallen from the highs seen during the 2025 political turmoil. That makes option-selling approaches, such as bearish call spreads, more attractive. We think selling call spreads with strikes above the 208.00 psychological resistance level is a strong way to position for sideways-to-lower price action. The main risk to this view remains Japan’s fiscal outlook, which was also a concern last year. A sudden announcement of a large government spending package could weaken the yen and trigger a sharp spike in the pair. For that reason, defined-risk option structures are important to limit losses from unexpected policy moves.

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DBS Group Research says its FX risk score fell in early 2026 to its lowest level since late 2021. The main reason is a weaker US dollar at the start of the year. The US dollar already fell 9.4% in 2025. DBS links the continued pressure to worries about Federal Reserve independence, fading US exceptionalism, long-term fiscal health, and policy uncertainty.

Dollar Weakness Drives Lower FX Risk

DBS notes the appointment of Kevin Warsh as the new Fed Chair. It also says funding conditions remain comfortable in euro and Japanese markets, although there is a slight bias toward tightening. DBS says this FX reading comes from its Asset Risks Dashboard, which tracks four asset classes: equities, interest rates, credit, and FX. This update focuses on FX. The current weakness in the US dollar may create a clear opportunity for traders in the coming weeks. After the 9.4% drop in the dollar index in 2025, the downtrend is still in place in early 2026. This suggests it may make sense to position for more dollar weakness. Fiscal concerns are a key driver, so they are worth watching closely. US debt-to-GDP is now above 125%, a level not seen since after World War II. This is raising doubts about long-term sustainability and weighing on the dollar. In this setting, it is harder for the greenback to find firm support.

Potential Trades In A Softer Dollar Regime

For currency traders, this can support long positions in major pairs against the dollar, such as EUR/USD. One approach is to buy euro call options, such as an April expiry with a 1.12 strike, to benefit if the dollar falls further. Futures markets also reflect this shift. They now price only a 15% chance of a Fed rate hike by June, down from more than 50% a few months ago. A weaker dollar can also support commodities, especially gold. Historically, the dollar and gold often move in opposite directions. That pattern also appeared during the dollar’s decline in 2020. Open interest in gold futures is rising, and many positions appear to target a move toward $2,500 per ounce over the next quarter. This environment can also help some emerging-market currencies that benefit from a softer greenback. When the dollar falls, it becomes easier for these countries to service USD-denominated debt, which can lift investor confidence. Foreign inflows into emerging-market bonds hit a two-year high last month, showing growing interest. Create your live VT Markets account and start trading now.

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WTI rose for a third straight session and traded near $64.20 a barrel in early European trading on Tuesday. Prices found support from rising tensions between the US and Iran. Traders are also waiting for the API weekly inventory report due later today. The US warned American-flagged vessels to avoid Iranian waters when passing through the Strait of Hormuz. Both the US and Iran said talks would continue after discussions in Oman last Friday.

Us Iran Tensions Support Prices

Iran held to its position on uranium enrichment, which remains a key dispute with Washington. Ongoing diplomatic efforts could limit any further rise in crude prices. Supply factors also weighed on the outlook. Venezuelan exports rose to 800,000 bpd in January from 498,000 bpd in December, according to Reuters. Higher exports could add to global supply. Markets also watched India’s imports of Russian oil during US–India trade talks. Reports of a freeze on Russian crude purchases could change flows from one of the largest buyers of Russian oil and affect global prices. The market looks very different today than it did at this time last year, when WTI traded near $64 per barrel. Since then, traders have priced in a large geopolitical risk premium. Crude is now holding above $78. This suggests that concerns about US-Iran tensions from early 2025 have not eased and may have intensified.

Volatility And Risk Premiums

In 2025, the Oman-hosted talks failed to produce a lasting deal. Since then, there have been several minor clashes in the Strait of Hormuz. This has kept volatility high, and traders should expect it to stay elevated. War risk premiums for tankers passing through the Strait have risen by 40% since the fourth quarter of 2025. This added cost is helping support higher prices. In addition, the supply headwinds expected in 2025 never fully appeared. Venezuelan exports briefly reached 800,000 bpd, but have since dropped. Recent EIA data shows output has struggled to stay above 750,000 bpd due to infrastructure problems. For now, that potential source of extra supply has faded. Concerns about India’s imports of Russian crude also proved valid and added another bullish driver. After diplomatic pressure, Indian refiners cut Russian oil intake by nearly 300,000 bpd in the final quarter of 2025. This forced a major buyer to seek barrels elsewhere, tightening the global market. Over the coming weeks, options traders may want strategies that benefit from continued volatility, such as long straddles. While the trend is upward, a surprise diplomatic breakthrough could trigger a sharp pullback. Implied volatility on front-month WTI options is now near 35%, up from the low 20s seen through much of 2023 and 2024. Demand also matters, especially from China. Recent data has been mixed. China’s latest Caixin Manufacturing PMI was 50.8, showing only slight growth. This softer demand picture could cap prices, meaning far out-of-the-money call options may carry more risk than reward. Create your live VT Markets account and start trading now.

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ECB officials have recently said that focusing on euro strength is not helpful. This comes after markets grew concerned two weeks ago when EUR/USD moved above 1.20. Officials also pointed out that most of the euro’s gains happened in the first quarter of 2025. That followed the announcement of a German fiscal package and an early decline in the US dollar. The ECB is expected to avoid a stronger response unless the euro rises more sharply. The key question is whether the ECB would use tougher language or cut rates if EUR/USD climbs further. The euro remains a regular topic in officials’ public comments. Many observers are focused on what EUR/USD level might trigger an ECB response. A stronger euro can hurt the competitiveness of euro area exports. EUR/USD moved back above 1.19 yesterday. The article says it was produced with the help of an Artificial Intelligence tool and reviewed by an editor. Because the ECB has clearly been uncomfortable with EUR/USD above 1.20, we think a soft ceiling is forming near that level. However, its reluctance to act suggests it will still tolerate strength below this key psychological area. As a result, near-term upside looks limited. Recent data supports this view. Last week’s numbers showed eurozone inflation still elevated at 2.4%, while quarterly GDP growth was weak at 0.2%. This leaves the ECB in a difficult position: it cannot easily cut rates to weaken the euro while inflation remains above target. We therefore expect more verbal warnings if EUR/USD holds a move toward 1.21, but we do not expect near-term policy action. For derivatives traders, this setup favours selling volatility, especially through upside strikes. Selling call options with strikes at 1.2100 or higher for late-February or March expiries may be attractive, since ECB pushback could limit rallies in that area. A more structured approach would be a bear call spread designed to benefit from a capped range. Positioning data also matters. Speculative futures positioning is now net long euros at levels not seen since the second quarter of 2025, shortly before a sharp correction. That suggests the long-euro trade is getting crowded, which raises the risk of a fast drop if sentiment turns. Buying inexpensive out-of-the-money puts could be a sensible hedge against that risk. On the US side, recent inflation data has come in hotter than expected, which complicates the outlook for the Federal Reserve. That uncertainty is offering some support to the dollar and further limits the chance of a sustained breakout higher in EUR/USD. Overall, this strengthens the case for range-based strategies over the next few weeks.

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The Japanese yen traded near a one-week high against a weaker US dollar on Tuesday in Europe. It extended a two-day rise. Japan’s snap election result cut political uncertainty. Official warnings about possible currency action, and hopes for more Bank of Japan (BoJ) policy normalisation, also supported the yen. Prime Minister Sanae Takaichi’s Liberal Democratic Party won 316 of 465 lower-house seats on Sunday. This was the first time a single party has held a two-thirds supermajority since Japan’s parliament was formed in 1947. The result gives the government more room to pass laws, even if the upper house resists. It also supports plans for higher spending. That raised concerns about Japan’s public finances and limited yen gains. Risk appetite improved, and Middle East tensions seemed to ease. Officials repeated that Japan could act against moves they see as out of line with fundamentals. This helped cap USD/JPY. Finance Minister Satsuki Katayama and currency diplomat Atsushi Mimura said they were watching markets closely. The dollar stayed weak as markets priced in two US Federal Reserve rate cuts this year. At the same time, traders still expected more BoJ tightening. Reports and comments also raised doubts about Fed independence. Bloomberg also said Chinese regulators told institutions to curb US Treasury holdings. Traders watched US retail sales on Tuesday. Attention then shifted to US nonfarm payrolls and consumer inflation on Friday. Key technical levels mentioned were 155.60–155.50 support, RSI at 39, and 154.91 as another downside level. Looking back at sentiment from late last year, many made a strong case for a weaker USD/JPY. The argument was based on BoJ policy normalisation and threats of intervention. This followed Prime Minister Takaichi’s clear election win, which first lifted the yen. Many expected the yen to keep rising from around 155 per dollar. However, the BoJ has been more cautious than markets expected in 2025. It did move away from ultra-loose policy, but the key policy rate is still only 0.25%. That is a much slower pace than many traders had priced in. With such a low yield, the yen looks less attractive than other currencies. In contrast, the US Federal Reserve did not cut rates as much as many predicted in late 2025. Services inflation stayed stubborn. Core PCE in January 2026 came in at 2.7%, which limited the Fed’s ability to make deep cuts. The rate gap between the US and Japan therefore remains wide. That has revived the carry trade that tends to favour the dollar. For derivatives traders, this means the setup has changed a lot from what people expected late last year. USD/JPY did not break below 155 and later rebounded, recently trading near 158. With such a wide rate gap, staying long USD versus JPY still has a strong fundamental case. The risk of intervention by Japanese authorities—seen in October 2025—has also kept implied volatility high. That makes selling USD/JPY options less appealing, because sudden large moves are still possible. Instead, traders may prefer strategies that can benefit from a gradual rise, while limiting the damage from an intervention shock. One approach for the next few weeks is to buy USD/JPY call options or call spreads. This can profit from further gains driven by the rate gap. Another approach is to hold a long USD/JPY spot position, but buy out-of-the-money put options for protection. That lets traders take part in the carry trade while setting a floor in case authorities intervene again.

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GBP/USD jumped fast, which pushed short-term momentum into stretched territory. The pair may still test 1.3730 during the session, but the odds of staying above that level are low. Over the next 1–3 weeks, upside momentum is improving as the earlier downside pressure fades. A daily close above 1.3730 is the key trigger. If that happens, it would open the door for a move toward 1.3785. The 1.3600 level is strong support. If 1.3600 holds, the chances of a close above 1.3730 should increase over the next few days. We saw a similar setup in 2025. Momentum was rising, but we still needed a firm close above 1.3730 to confirm the next leg higher. That view correctly warned that the rally could lose steam and stressed the need to respect key levels. For that bullish case, 1.3600 was the line in the sand. Today the picture is different, with GBP/USD trading much closer to 1.2750. Recent data shows UK inflation remains sticky. January CPI came in at 2.9%, slightly above expectations. At the same time, the US labor market remains strong. This creates a push-and-pull between the two currencies. For traders, this points to consolidation before a clearer move. The cautious approach from 2025 applies again: wait for a clean break from the current range before taking a strong directional view. Short-term momentum indicators are neutral, which matches the market’s uncertainty. Given that, options may be a sensible way to position for a breakout. One-month implied volatility in GBP/USD is around 7.5%, which keeps strategies like strangles relatively cheap for traders who expect movement but are unsure of direction. This can help traders position for a break without taking immediate spot exposure to choppy price action. The key levels now are support near 1.2680 and resistance at 1.2820. A daily close outside this range would suggest a new trend is starting—similar to how we once focused on a close above 1.3730. Until then, patience remains the best approach.

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Sweden’s industrial production value rose 4.2% year over year in December. This was the same pace as in the previous month. This unchanged reading points to steady annual growth in industrial output value at the end of the year. The release did not include a detailed breakdown.

Swedish Industrial Output Outlook

The stable 4.2% year-over-year rise in industrial production in December 2025 gives Sweden a solid starting point for the new year. It suggests the economy still has momentum. For us, this lowers the chance that the Riksbank will cut interest rates soon. Newer data supports the same message. Sweden’s manufacturing PMI rose to 53.5 in January 2026, which signals continued expansion. That strength is supportive for industrial company earnings. We should consider buying call options on the OMXS30 index, as the market may not fully reflect this resilience yet. This backdrop should also support a stronger Swedish Krona. EUR/SEK has already dropped by more than 1% since the start of the year, and these numbers argue for more downside. We see an opportunity to buy SEK call options versus the Euro, aiming for a move below the 11.20 level seen last autumn. Inflation in January 2026 came in at 2.1%, slightly above the Riksbank’s target. This keeps pressure on the central bank to stay hawkish. Rate markets now price in more than a 50% chance of another hike by mid-year, a big change from one month ago. We should review forward rate agreements that benefit from higher short-term rates through the second quarter.

Options Volatility Strategy

With a Riksbank policy meeting next week, implied volatility in both the Krona and the OMXS30 has increased. That makes selling out-of-the-money puts on Swedish industrial stocks a potential way to earn premium. The strong economic base may help limit major market declines, which makes this a measured risk. Create your live VT Markets account and start trading now.

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Sweden’s industrial production value rose 5.1% month on month in December. This followed a -0.1% change in the previous month. The December release shows a strong 5.1% month-on-month rise in industrial output. This is a clear rebound from November’s slight decline. We see this as a bullish signal for the Swedish economy that the market may not be fully reflecting yet. It could be a near-term catalyst for gains in Swedish assets. This strength also suggests the Swedish Krona (SEK) may be undervalued, especially versus the euro. With the Riksbank focused on its 2% inflation target, stronger growth reduces the case for near-term rate cuts. We would consider buying SEK call options or selling EUR/SEK futures, looking for a move toward 11.10 (a level last seen in late 2025). In equities, the data is supportive for the industrial-heavy OMXS30 index. Large components such as Atlas Copco and Volvo could see earnings expectations revised higher. We see value in OMXS30 call spreads, targeting a 3–5% rally before the end of Q1. The report also affects rates. A stronger economy could push the Riksbank to sound more hawkish. Swedish 10-year government bond yields, recently steady around 2.5%, could move higher. Shorting Swedish bond futures could work either as a hedge or as a standalone trade. A result this far above expectations can also lift volatility. Implied volatility on OMXS30 options has been near 15%, which now looks too low. To position for higher uncertainty, we can buy straddles on key industrial companies that are about to report earnings.

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UOB analysts said EUR/USD jumped sharply and is now overbought on an intraday basis. They added that the pair could still rise toward 1.1945 before it starts to consolidate. Over the next 1–3 weeks, UOB expects more upside if EUR/USD posts a daily close above 1.1945. If it does, the next target is 1.1980. Support is at 1.1840. UOB said the bullish view stays valid as long as the pair holds above 1.1840. The article says it was made with help from an artificial intelligence tool and reviewed by an editor. It is credited to the FXStreet Insights Team. This looks like a setup we have seen before, similar to 2025, where momentum built for another push higher in EUR/USD. Recent data showing Eurozone core inflation holding at a firm 2.2% last week supports this bullish bias. In contrast, the latest US wage growth cooled a bit more than expected, which may mean the Federal Reserve has less need to stay hawkish. For traders, this points to positioning for a move toward the 1.1980 target from last year’s analysis. One direct way to trade a possible breakout is to buy call options with a strike just above the key 1.1945 level, such as 1.1950, with March expiration. This gives upside exposure while limiting the maximum loss to the premium paid. Because the rally has been sharp and may be overbought, a more cautious approach could be a bull call spread. For example, buy a 1.1900 call and sell a 1.2000 call. This reduces the upfront cost. It still benefits from a rise, but it helps if the move stalls before a larger breakout. The 1.1840 level should be watched closely as major support. A clear break below it would suggest the bullish momentum has failed, and any long positions should be reviewed, reduced, or hedged. This was the key “line in the sand” in 2025, and it remains the main defensive level today. Looking back to the fourth quarter of 2024, similar overbought signals led to a short pause of about two weeks before the uptrend continued strongly. That history suggests that a period of consolidation below 1.1945 does not automatically mean the trend is broken. It may simply be the market pausing before the next leg higher.

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EUR/JPY slipped toward 185.00 in early European trading on Tuesday. The Japanese Yen strengthened after Prime Minister Sanae Takaichi won Japan’s snap election on Sunday. The ruling Liberal Democratic Party won 316 of 465 seats in the lower house. This is the first time a single party has won a two-thirds majority since World War II. Focus is now shifting to fiscal policy, including discussions about cutting sales tax on food. Markets are also asking how new spending plans, including defence spending, would be funded. Japan’s government is expected to submit its nominee as early as February 25. The nominee must be approved by both the lower and upper houses of the National Diet. The Finance Minister said the government wants to pass next year’s budget and tax reform as soon as possible. These developments could influence future currency moves. On the daily chart, EUR/JPY is holding above the 100-day EMA at 180.62. The RSI is 54 (neutral), and Bollinger Bands are narrowing slightly. Resistance sits at 186.28, near the upper band. Support is at 184.37, near the middle band, followed by 182.46 at the lower band. EUR/JPY is stabilising near 185.00 after the yen’s brief jump following the LDP’s election win. With the RSI neutral at 54 and Bollinger Bands tightening, the pair may be entering a consolidation phase. That points to smaller near-term price swings. If volatility stays low, some traders may look at strategies that benefit from calmer markets. One-month implied volatility has dropped to around 7.5%, which can make option-selling strategies more appealing. An iron condor, with strikes placed outside the near-term support and resistance levels of 184.37 and 186.28, could work over the next couple of weeks. That said, the longer-term picture still leans toward yen weakness if the new government pushes more expansive fiscal policies. A similar pattern appeared in 2025, when early yen strength faded after investors began pricing in the impact of higher government spending. This backdrop supports a bullish EUR/JPY view over the coming months. Low volatility can also create a chance to position for a later move higher. Longer-dated call options (for example, April or May expiries) may be cheaper while implied volatility is depressed. This approach targets upside while keeping the initial cash outlay limited. One key date is February 25, when the government is expected to submit its nominee. This could bring volatility back into the market, so it may be wise to close short-volatility trades before then. As the date approaches, uncertainty often lifts option prices. On the euro side, recent Eurozone inflation printed slightly above expectations at 2.3%. That supports the European Central Bank’s steadier stance. This contrast—potential fiscal expansion in Japan versus a watchful ECB—adds support to the broader bullish case for EUR/JPY.

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