USD/CAD was steady on Tuesday as the US Dollar stabilised after recent losses. Higher Oil prices supported the Canadian Dollar, limiting upside, with the pair near 1.3662 and ending a six-day slide.

The US Dollar Index was around 98.40, up nearly 0.35% on the day. The move followed weaker expectations that the US-Iran conflict will ease before a two-week ceasefire deadline.

Geopolitical Uncertainty And Dollar Support

A second round of talks expected in Pakistan was reported as unlikely to restart soon, and Iran has not confirmed participation. CNN reported that US Vice President JD Vance is expected to leave for Islamabad on Wednesday.

US data also supported the Dollar. Retail Sales rose 1.7% month-on-month in March versus 1.4% expected, after 0.7% in February, and the ADP Employment Change four-week average increased to 54.8K from 39K.

On charts, USD/CAD traded near the lower Bollinger Band around 1.3640. RSI was near 36 and MACD remained negative.

Support sits near 1.3640, then the March low around 1.3525. Resistance is near 1.3822, with the upper band around 1.4005.

Looking back at this time in 2025, we saw a conflict between a strong US Dollar and bearish technical signals for USD/CAD. The pair was trading near 1.3662, but indicators were pointing toward downside pressure despite robust US economic data. Now in late April 2026, the fundamental landscape has shifted significantly.

Macro Shift And Trading Implications

The case for US Dollar strength has weakened considerably compared to last year. The latest US Non-Farm Payrolls for March 2026 came in at just 150,000, missing expectations, and the most recent CPI data showed inflation cooling to 2.8% year-over-year. This has led markets to fully price in a Federal Reserve interest rate cut by the end of the third quarter.

Meanwhile, the Canadian Dollar is finding support from persistently high energy prices. WTI crude oil has remained firmly above $90 per barrel through most of 2026, strengthening Canada’s terms of trade and keeping the Bank of Canada more cautious on easing policy than the Fed. This growing policy divergence between the two central banks favors a stronger CAD.

Given this outlook, we should consider positioning for a potential drop in USD/CAD over the next several weeks. Buying put options with a strike price around 1.3800 could be an effective way to gain downside exposure with a defined risk. The support levels identified back in 2025 around 1.3640 and 1.3525 now serve as logical price targets for such a move.

We are also seeing implied volatility in USD/CAD options rise from its recent lows, suggesting the market is anticipating a move. This makes options slightly more expensive, so traders could use put debit spreads to reduce the upfront cost. The key will be to watch for a break below recent support to confirm that bearish momentum is building.

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Rabobank strategist Michael Every describes a complex setting for the euro, shaped by the war in Ukraine, EU funding plans, and political splits within Europe. He also points to wider tension between the US and Europe on security and foreign policy.

He says Ukraine is making battlefield gains and suggests victory is becoming more plausible, aided by drone strikes. The EU is also preparing for delays to US weapons shipments because of the Iran war.

European Political And Security Crosscurrents

The Times reports the UK is not seizing Russian shadow fleet tankers in its waters, citing the cost of berthing and maintaining them. France and Germany are reported to be weighing an EU accession approach that offers Ukraine “symbolic” benefits, without access to the EU common budget or voting rights.

The Wall Street Journal reports that many German firms are trying to become defence suppliers as the country speeds up rearmament. The piece states it was made with the help of an AI tool and reviewed by an editor.

The potential for a Ukrainian victory and Germany’s industrial pivot towards defense suggests a bullish outlook for the sector. We should consider buying call options on major European defense contractors, as their order books are swelling; Rheinmetall AG’s backlog, for instance, reportedly surpassed €50 billion in the first quarter of 2026. This rearmament trend points to sustained growth regardless of near-term battlefield outcomes.

However, delays in US support and internal EU divisions over Ukraine’s future introduce significant uncertainty. To protect our portfolios, buying VSTOXX futures or call options is a prudent hedge, as European market volatility has already climbed 15% in the past month to over 22. Looking back from our 2025 perspective, we remember how the VIX index surged over 35 during the initial 2022 conflict, showing how quickly geopolitical stress can impact markets.

Euro Trading Strategy Under Heightened Volatility

The Euro is caught between these conflicting forces, making a clear directional bet on EUR/USD risky. A long straddle options strategy on the Euro could be effective, profiting from a large price swing in either direction as these tensions play out. The European Central Bank’s latest minutes from early April 2026 showed a divided council on future policy, reinforcing the potential for sharp, unpredictable currency moves.

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Rabobank strategist Michael Every describes a complex setting for the euro, shaped by the war in Ukraine, EU funding plans, and political splits within Europe. He also points to wider tension between the US and Europe on security and foreign policy.

He says Ukraine is making battlefield gains and suggests victory is becoming more plausible, aided by drone strikes. The EU is also preparing for delays to US weapons shipments because of the Iran war.

European Political Fault Lines

The Times reports the UK is not seizing Russian shadow fleet tankers in its waters, citing the cost of berthing and maintaining them. France and Germany are reported to be weighing an EU accession approach that offers Ukraine “symbolic” benefits, without access to the EU common budget or voting rights.

The Wall Street Journal reports that many German firms are trying to become defence suppliers as the country speeds up rearmament. The piece states it was made with the help of an AI tool and reviewed by an editor.

The potential for a Ukrainian victory and Germany’s industrial pivot towards defense suggests a bullish outlook for the sector. We should consider buying call options on major European defense contractors, as their order books are swelling; Rheinmetall AG’s backlog, for instance, reportedly surpassed €50 billion in the first quarter of 2026. This rearmament trend points to sustained growth regardless of near-term battlefield outcomes.

However, delays in US support and internal EU divisions over Ukraine’s future introduce significant uncertainty. To protect our portfolios, buying VSTOXX futures or call options is a prudent hedge, as European market volatility has already climbed 15% in the past month to over 22. Looking back from our 2025 perspective, we remember how the VIX index surged over 35 during the initial 2022 conflict, showing how quickly geopolitical stress can impact markets.

Euro Options For Two Way Risk

The Euro is caught between these conflicting forces, making a clear directional bet on EUR/USD risky. A long straddle options strategy on the Euro could be effective, profiting from a large price swing in either direction as these tensions play out. The European Central Bank’s latest minutes from early April 2026 showed a divided council on future policy, reinforcing the potential for sharp, unpredictable currency moves.

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Scotiabank strategists Shaun Osborne and Eric Theoret said the Canadian dollar was modestly softer as the US dollar stabilised. They said the broader bearish trend for USD/CAD remains in place.

They noted Canadian Consumer Price Index data came in softer than expected. They said this gives policymakers more time to assess the jump in energy prices.

They referred to the Q1 Business Outlook Survey and said it shows resilient inflation expectations. A record number of respondents expected inflation to stay in the 2–3% range.

They said the Bank of Canada is expected to hold the target rate at 2.25% at the 29 April policy decision. They also said policy could tighten modestly by year-end.

On technical levels, they cited resistance around 1.3750, linked to the 40-day moving average, mid-March highs, and former support. They listed US dollar support at 1.3625/30 and 1.3500/25.

Looking back at this time in 2025, the prevailing view was that the US dollar would weaken against the Canadian dollar. This was based on the idea that the broader bearish trend in USD/CAD was strong and intact. The analysis then pointed to significant resistance around the 1.3750 level.

The situation has evolved significantly since then, as the Bank of Canada is now signaling a different path. The Bank recently held its key interest rate at 3.50% but has indicated a potential rate cut as early as June, citing slowing economic growth. This contrasts sharply with the modest tightening bias we observed this time last year.

Meanwhile, monetary policy divergence with the United States is becoming a major driver for the currency pair. Recent data showed the US economy added a surprisingly strong 285,000 jobs last month, keeping the Federal Reserve on a hawkish footing and delaying any talk of rate cuts. This growing gap in interest rate expectations is putting upward pressure on USD/CAD.

Inflation dynamics have also shifted from what we saw in 2025. While last year’s softer CPI print gave the BoC breathing room, the latest report for March 2026 showed inflation remains sticky at 2.9%, especially due to shelter costs. However, the market appears more focused on the central bank’s forward guidance for easing rather than the current inflation reading.

For derivative traders, this environment suggests a shift away from the bearish USD/CAD stance of 2025. We believe strategies that profit from a rising USD/CAD, such as buying call options or establishing bull call spreads, should be considered to capitalize on the policy divergence. These positions offer defined risk while providing upside exposure to a stronger US dollar.

The prospect of upcoming rate cuts from the Bank of Canada introduces significant event risk and will likely increase volatility. We are seeing implied volatility on USD/CAD options rise ahead of the next BoC meetings. Traders should therefore structure positions that can benefit from these price swings while carefully managing their premium costs.

Gold fell on Tuesday, trading near $4,700 and down almost 2.50% on the day, alongside a modest rebound in the US Dollar. Renewed tension in the Strait of Hormuz also weighed on market sentiment.

US data added pressure on gold prices. Retail Sales rose 1.7% month-on-month in March versus 1.4% expected, and February was revised at 0.7%; the ADP Employment Change four-week average increased to 54.8K from 39K.

Market Drivers And Geopolitical Signals

Reports about a second round of US-Iran peace talks in Pakistan were mixed. Iran’s state broadcaster said on Telegram that no Iranian delegation had travelled to Islamabad.

A White House official said Vice President JD Vance had not yet left for the talks. A two-week ceasefire is due to expire on Wednesday, and President Donald Trump said it is “highly unlikely” he will extend it, adding the Strait of Hormuz would not be opened until a deal is signed.

The Strait of Hormuz remains under a dual blockade by US naval forces and Iran, supporting higher oil prices and keeping inflation risks in focus. This has reinforced expectations of higher interest rates for longer, which can reduce demand for non-yielding gold.

On the four-hour chart, gold traded below the Bollinger centre line near $4,795.92, with resistance near $4,725, $4,796, and $4,867. The RSI was about 35 and the ADX near 14.

With the US-Iran ceasefire deadline this Wednesday, we must prepare for a significant price swing in gold. The conflicting reports on peace talks create a binary outcome, making directional bets risky. This setup is ideal for strategies that profit from a sharp move in either direction.

Volatility Strategy And Options Positioning

Positioning for a surge in volatility seems to be the most logical play. The Gold VIX (GVZ) has likely jumped over 30% in the past week, a spike reminiscent of the market reaction to the conflict in Ukraine back in 2022, making options pricier but also more potent. A long straddle, buying both a call and a put option with the same strike price and expiry, would allow us to capitalize on a major breakout from the current range.

For now, the path of least resistance appears to be downwards, pressured by a strong dollar and robust US retail sales figures. Looking back at the Commitment of Traders reports from 2025, we saw how quickly managed money can liquidate long positions when geopolitical risk is outweighed by hawkish Fed policy. Therefore, buying put options with a strike near $4,650 could be a prudent way to capture further downside if talks officially collapse.

The ongoing Strait of Hormuz blockade is keeping WTI crude oil prices firmly above $130 a barrel, feeding the narrative that interest rates will remain high to combat inflation. While gold is often seen as a hedge against inflation, the market is currently more focused on the high opportunity cost of holding the non-yielding metal. This pressure is likely to continue until we see a definitive shift in central bank policy.

From a technical perspective, the area around $4,725 is now firm resistance, and a sustained break below this week’s lows could trigger a swift move lower. We should be watching for any failure of the Relative Strength Index to confirm new price lows, which might signal a bullish divergence. In the event of a surprise peace agreement, a sharp relief rally is possible, making cheap, out-of-the-money call options an effective way to hedge against that tail risk.

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USD/JPY rose on Tuesday as the US Dollar firmed and risk appetite weakened. The pair traded near 159.57, up about 0.47%.

Markets watched uncertainty around US-Iran talks before a two-week ceasefire ends on Wednesday. A weekend flare-up in the Strait of Hormuz reduced hopes of quick progress.

Geopolitical Uncertainty And Market Focus

Pakistan’s Information Minister said Iran must decide on attending talks before the ceasefire deadline, while Iran has not confirmed participation. A White House official said US Vice President JD Vance had not yet left for the talks.

Donald Trump said he does not plan to extend the truce and warned fighting could restart without a deal. Iran’s parliament speaker, Mohammad Bagher Ghalibaf, said Tehran was “preparing to show new cards on the battlefield” and would “not accept negotiations under the shadow of threats.”

With disruption risks in the Strait of Hormuz, Oil prices stayed high, raising inflation and growth worries. Higher crude costs tend to weigh on the Yen because Japan imports much of its energy.

Oil-led inflation also affected rate expectations, with markets pricing fewer near-term Federal Reserve cuts. The Bank of Japan was seen staying on a gradual tightening path, with reports it may hold rates at its April meeting.

US data supported the Dollar as Retail Sales rose 1.7% MoM in March versus 1.4% expected, after 0.7% in February. The ADP Employment Change 4-week average increased to 54.8K from 39K, while attention stayed on the 160.00 level.

Volatility Strategies And Risk Management

We recall that period in 2025 when rising Middle East tensions and strong US data pushed USD/JPY toward 160. That combination of geopolitical risk and a hawkish Fed created a powerful trend that rewarded dollar strength. Seeing similar factors emerge now should put us on high alert for a repeat performance.

Given the potential for sharp, unexpected moves, buying volatility appears to be a prudent strategy in the weeks ahead. After the ceasefire deadline passed in 2025, we saw the JPY volatility index jump over 15% as uncertainty peaked. Traders should consider purchasing straddles or strangles on USD/JPY to profit from a large price swing, regardless of the initial direction.

For those with a directional view, long-dated call options offer a way to capitalize on potential further upside while capping risk. We remember how the Ministry of Finance stepped in with a significant intervention shortly after the pair broke above 160 in 2025, pushing it back towards 155. Buying puts can therefore be a cheap way to hedge long positions against a sudden reversal.

The dynamic of high energy prices weighing on the yen remains highly relevant today. Brent crude futures, which traded in a volatile $95-$105 range through the third quarter of 2025, continue to pressure Japan’s terms of trade. This reinforces the policy divergence theme that benefits the dollar over the yen.

With the latest US Consumer Price Index for March 2026 coming in hot at 3.1%, expectations for a Federal Reserve rate cut before September are diminishing. Meanwhile, the Bank of Japan’s recent Tankan survey showed worsening sentiment among large manufacturers, limiting its ability to tighten policy. This fundamental backdrop suggests the path of least resistance for USD/JPY remains upward, barring official intervention.

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GBP/USD eased by 0.18% as demand for the US Dollar rose after a strong US Retail Sales report. The pair traded at 1.3507 after earlier reaching an intraday high of 1.3539.

In the UK, new data indicated the labour market remained solid. Markets also weighed remarks linked to Fed Chair nominee Kevin Warsh during the US Senate session.

Usd Strength And Shifting Fed Expectations

We remember looking back at 2025 when strong US retail reports were a key driver, pushing the dollar higher and pinning GBP/USD around that 1.35 mark. That environment was defined by expectations of a more aggressive Federal Reserve. The landscape today in April 2026 is fundamentally different, with the market now focused on signs of a slowing US economy.

Recent US economic data has fueled this shift in sentiment, with the latest Non-Farm Payrolls report showing job creation slowing to 150,000, well below forecasts. Coupled with US CPI inflation moderating to 2.8%, markets are now pricing in a greater than 60% chance of a Federal Reserve rate cut before the end of the year. This contrasts sharply with the hawkish tone we saw influencing markets throughout 2025.

Meanwhile, the United Kingdom is dealing with stickier inflation, which recently printed at 3.5%. This has forced the Bank of England to maintain its Bank Rate at 5.0%, creating a notable and widening interest rate advantage over the US. This policy divergence is the primary force that has propelled GBP/USD from its 2025 levels to its current trading range around 1.41.

Given this divergence, we see rising implied volatility in currency options as a key theme for the coming weeks. Traders should consider purchasing call options on GBP/USD to gain upside exposure while limiting downside risk. This allows for participation in any further pound strength driven by the favorable interest rate differential.

Trading And Hedging Approaches

For those looking to hedge or express a directional view, using forward contracts to go long GBP/USD can be effective. The forward points should reflect the positive carry trade, providing a small pricing advantage over the spot market. This strategy is a direct play on the continuation of the current macroeconomic theme of UK policy firmness versus anticipated US easing.

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DJIA futures rose to an overnight high near 49,800, then reversed during Tuesday’s session. In the cash session, the DJIA fell about 0.2%, the S&P 500 dropped 0.3%, and the Nasdaq Composite slipped 0.1% as oil prices moved higher.

March US Retail Sales came in at 1.7% month-on-month versus 1.4% forecast. The Control Group was 0.7% versus 0.2% expected, and ex-autos was 1.9% versus 1.4%.

Treasury Yields And Fed Watch

After the 12:30 GMT data release, Treasury yields rose and DJIA futures turned lower. At 14:00 GMT, Fed Chair-designate Kevin Warsh’s testimony received a 7.0 hawkish rating in the FXStreet speech tracker, with attention then shifting to Fed Governor Christopher Waller’s 18:30 GMT speech.

WTI rose 4% to above $93 a barrel and Brent gained 2% to above $98. A ceasefire tied to Iran was due to expire on Wednesday, with reference to possible military action if no agreement is reached.

UnitedHealth rose over 6% after Q1 results and an increased full-year outlook, while Amazon gained over 1% after outlining up to $25 billion for Anthropic. DJIA futures ranged from about 49,000 to just under 49,800, traded near 49,400, and the Stochastic RSI was near 16.50; it referenced 49,800 as a recovery level and 49,000 as support, with upcoming data including jobless claims, flash PMI, and UoM expectations at 4.8% (1-year) and 3.4% (5-year).

The market is pulling back because strong consumer spending is making us think the Federal Reserve won’t be able to cut interest rates soon. This new data suggests that being long broad market index futures is risky right now. We should probably reduce our bullish exposure until the outlook on rates becomes clearer.

Oil Inflation And Volatility

The hawkish message from the incoming Fed chair adds to our worries. After we saw the market rally through late 2025 on the promise of several rate cuts, this new tone is a significant change. With recent government data showing core inflation still stubbornly above 3.5%, the path for lower rates that we expected is now very much in doubt.

The spike in oil prices to over $93 a barrel due to Middle East tensions is another major headwind. This directly fuels inflation and hurts corporate profits, creating more uncertainty across the board. We should expect the VIX, which sat near a calm 15 last month, to rise, making strategies that benefit from higher volatility, like buying straddles on the S&P 500, more attractive.

While the overall market looks weak, we are seeing strength in specific stocks like UnitedHealth and Amazon. This points to opportunities in sector-specific trades, perhaps favoring healthcare and AI-focused tech over rate-sensitive industries like banking. Using call options on these outperforming stocks could be a way to capture upside while limiting risk in a shaky market.

For short-term index traders, the key levels on DJIA futures are 49,000 and 49,800. A decisive break below the 49,000 support level would be a strong signal to initiate bearish positions like buying put options. Until then, the market will likely be choppy as we wait for the crucial inflation expectations data at the end of the week.

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NZD/USD was near 0.5900 on Tuesday, up 0.20% on the day, after rebounding from around 0.5850 on Monday. The move was driven by a firmer New Zealand Dollar, while the US Dollar stayed subdued amid mixed data.

New Zealand’s CPI rose 0.9% quarter-on-quarter in Q1, above the 0.8% forecast and up from 0.6% in the prior quarter. Annual inflation held at 3.1%, above the 2.9% forecast and just over the RBNZ’s 1% to 3% target band.

Rbnz Rate Outlook

The data has lifted expectations of tighter RBNZ policy, with some market pricing for a possible rate rise as soon as May. Commerzbank said a rate increase could support the NZD in the short term, while noting stagflation risks linked to higher energy prices.

Risk appetite improved after reports of possible renewed US-Iran talks, though uncertainty persists over timing and credibility. The US Dollar Index was around 98.30, even as March Retail Sales rose 1.7% month-on-month, beating expectations.

Markets are also watching the Middle East as a temporary US-Iran truce nears its deadline. President Donald Trump said the US is ready for military action if talks fail.

With the New Zealand dollar strengthening, we are seeing a direct reaction to the latest inflation figures. First-quarter inflation for 2026 came in at 3.4% year-over-year, surprising everyone who expected a figure closer to 3.1%. This keeps inflation stubbornly above the Reserve Bank of New Zealand’s (RBNZ) target band, making a rate hike more likely.

Options Strategy Considerations

This persistence of inflation puts the RBNZ in a difficult position ahead of its May 22 meeting. We see the market quickly pricing in a higher chance of another hike to the Official Cash Rate, which has been holding at 5.50% for nearly a year. This expectation is the primary driver pushing the NZD/USD cross above the 0.6050 level.

For us, this creates a clear opportunity to use options to position for further short-term strength in the Kiwi. Buying NZD/USD call options with a June expiry allows us to capitalize on a potential rally following the RBNZ’s decision next month. Strike prices around 0.6150 could offer a favorable balance of risk and reward.

On the other side of the trade, the US dollar appears to be losing some momentum. Recent Core PCE inflation in the United States for March came in at 2.6%, slightly below the 2.7% forecast, which may temper the Federal Reserve’s appetite for tightening. This divergence in central bank outlooks provides a strong tailwind for the NZD/USD pair.

However, we must remain aware of broader market risks, such as renewed trade friction between the US and China. To manage this uncertainty, purchasing put options can serve as a hedge against our bullish positions if global sentiment sours. Alternatively, if we anticipate a sharp move but are unsure of the direction, a straddle strategy could be effective.

Looking back, we saw similar dynamics in the second half of 2025 when rate differential speculation caused the pair to swing widely between 0.5800 and 0.6200. This historical volatility shows that the current setup has the potential to generate significant movement. Therefore, having a defined derivatives strategy is essential to navigate the coming weeks.

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Kevin Warsh, President Donald Trump’s nominee to replace Jerome Powell as Federal Reserve chair, told the Senate Banking Committee that he wants fundamental policy reforms. He linked reform to cost-of-living pressures and said the Fed should focus on price stability and stay within its remit.

He called for a new inflation framework, different use of tools, and clearer communications. He said the interest-rate tool is fairer than bond buying and that the Fed should leave “the fiscal business”.

Message Discipline And Policy Reset

Warsh said the Fed should be willing to change its mind and correct mistakes quickly, and he expressed scepticism about forward guidance. He also said Fed officials speak too much in advance about the rate path.

He said inflation risks have improved somewhat, but that inflation data is imperfect and policy works with lags. He said he disagrees that tariff policy explains an inflation overshoot, and said AI effects mean the Fed should revisit its models.

Warsh said a smaller balance sheet could allow lower rates, better inflation outcomes, and a stronger economy. He will testify on Tuesday at 09:00 GMT.

The CME FedWatch Tool shows about a 60% probability of the policy rate being unchanged at 3.5%–3.75% at end-2026. In January, markets forecast three 25 basis point cuts this year, but expectations shifted after crude oil rose amid US and Israeli action against Iran and related inflation fears.

Geopolitics Oil And Fed Volatility

Given the current date of April 21, 2026, our immediate focus must be the geopolitical risk from Iran. With the ceasefire expiring this Wednesday and an extension looking unlikely, volatility in the oil market is the primary concern. We have already seen West Texas Intermediate crude oil surge from around $85 in January to over $110 a barrel, directly impacting inflation expectations.

The potential for a new Fed “regime change” under Kevin Warsh suggests we should prepare for a more hawkish and less predictable central bank. His skepticism of forward guidance means we will receive less hand-holding on the future path of interest rates. This implies that volatility around future Fed meetings will likely increase, a factor we must price into our options strategies.

Warsh’s comments about shrinking the balance sheet are critical for the bond market. His view that a smaller balance sheet could ultimately allow for lower rates suggests a commitment to Quantitative Tightening, which could put upward pressure on long-term yields even if the policy rate is held steady. We remember the market’s reaction during the “taper tantrum” of 2013, and the Fed’s balance sheet is still near $7 trillion, a level Warsh seems eager to reduce.

The market has correctly repriced expectations away from the three rate cuts we anticipated back in January. The CME FedWatch Tool now shows a 60% probability of rates remaining at their current 3.5%-3.75% level through the end of the year. In the coming weeks, we should consider using derivatives to hedge against the growing possibility that the next move could be a hike if energy prices remain high.

His preference for “chaotic meetings” and a diversity of views means the consensus that guided us in the past may disappear. This makes directional bets riskier and options that profit from volatility, such as straddles on equity indices and bonds, more attractive. We must adapt to an environment where the Fed is comfortable correcting its mistakes quickly and without prior warning.

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