Gold (XAU/USD) rose to about $4,700 in early European trading on Monday after buying interest emerged near $4,600. Bloomberg, citing Axios, reported talks involving the US, Iran, and regional mediators on terms for a possible 45-day ceasefire. Oil climbed to a nearly four-week high after US President Donald Trump said Iran’s power plants and bridges could be targeted if the Strait of Hormuz is not reopened by Tuesday. Tehran said transit could resume if part of the revenue is used to compensate Iran for war-related damages.

Middle East Tensions And Gold

Ali Akbar Velayati warned the Bab el-Mandeb Strait in the Red Sea could be targeted, raising concerns about trade disruption. Friday’s upbeat US Nonfarm Payrolls report supported expectations that the Federal Reserve may keep rates higher for longer, which helped the US Dollar and weighed on gold. Traders are watching for a move below $4,600 to assess whether the rebound from $4,100, a four-month low in March, is fading. Focus later turns to the US ISM Services PMI, with thinner liquidity due to Easter Monday in many markets. Technically, $4,600 matches the 38.2% Fibonacci retracement of the March fall, while price remains below the 200-period EMA on the 4-hour chart. MACD is below its signal but both sit just above zero; RSI is 52, with resistance at $4,758, then $4,791 and $4,913, and support at $4,411 and then $4,300. We see a clear tug-of-war between Middle East tensions pushing gold up and central bank policy pulling it down. A 45-day ceasefire could see prices fall sharply, while a confirmed closure of the Strait of Hormuz would likely cause a significant rally. This suggests derivative traders should consider strategies that profit from a large price swing, such as long straddles, with implied volatility on gold options now trading above 25 for the first time since late 2025.

Fed Policy And Derivatives Positioning

The Federal Reserve remains a major headwind for gold, especially after last Friday’s strong jobs report and March’s CPI data showing inflation still sticky at 4.1%. With the market now pricing in a 65% chance of another rate hike to 6.00% by July, any sign of de-escalation in Iran will likely prompt traders to buy puts or establish bear call spreads. We remember from 2025’s perspective how aggressive rate hikes in 2022 eventually overshadowed initial geopolitical safe-haven bids, a pattern that could repeat itself. On the other hand, the risk to global shipping lanes is very real and supports holding bullish positions like call options. With Brent crude holding stubbornly above $150 a barrel due to the Hormuz situation, sustained energy-driven inflation could force investors back into gold as a hedge. A threat to the Bab el-Mandeb Strait would be a new escalation, making out-of-the-money call options with strike prices near the $4,900 resistance level an attractive high-risk, high-reward play. The $4,600 level is the immediate line in the sand for derivative plays over the next few weeks. A decisive break below this point could trigger stop-losses and serve as a signal to buy puts targeting the $4,411 support level. Conversely, traders could sell cash-secured puts with a strike price near $4,300 to collect premium, betting that the March lows will hold as a floor. Create your live VT Markets account and start trading now.

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The Indian rupee fell after a flat start against the US dollar at the start of the RBI’s policy week. USD/INR moved up to about 92.85, weighed down by firmer oil prices linked to renewed US threats towards Iranian infrastructure. WTI crude traded near $102 during India’s afternoon session, reaching a fresh four-week high. Higher oil prices can pressure currencies of oil-importing economies such as India.

Key Drivers Of Recent Rupee Weakness

Foreign selling in Indian equities added pressure on the rupee. In the first two trading days of April, FIIs sold Rs. 18,262.28 crore, and they were net sellers on all trading days in March. Markets are watching the RBI’s monetary policy decision on Wednesday, with rates expected to stay unchanged. Attention is also on the US ISM Services PMI for March at 14:00 GMT, forecast at 55.0 versus 56.1 in February. USD/INR support is seen near 92.35, with a close below that level pointing towards 91.35. Resistance stands around the 20-day EMA near 93.00, then 93.66, with the all-time high at 95.22. With the USD/INR pair testing 92.85, we see a clear case for a weakening rupee in the near term. The combination of soaring oil prices and significant foreign fund outflows creates strong headwinds. For the coming weeks, we should consider buying out-of-the-money USD/INR call options to position for a potential move higher with defined risk.

Strategy Considerations For The Week Ahead

The threat of WTI oil staying above $100 a barrel is a major concern for the rupee, as India imports over 85% of its crude oil needs. This situation mirrors what we saw during geopolitical flare-ups in 2022, when oil prices surged and directly pressured India’s current account deficit and currency. A sustained period of high oil prices will almost certainly push the USD/INR pair towards its previous highs. The heavy selling by Foreign Institutional Investors, with over Rs. 18,000 crore pulled out in just two days, is continuing a trend we observed in the final quarter of 2024. This consistent outflow strengthens the US Dollar and puts sustained pressure on the rupee. As long as Middle East tensions persist, this flight to safety will likely continue, making it difficult for the INR to find a solid footing. Wednesday’s RBI policy announcement is this week’s key event risk, creating potential for a spike in volatility. While the market expects rates to be held, any hawkish commentary to combat inflation could temporarily strengthen the rupee, while a dovish stance would accelerate its fall. A long straddle option strategy could be a prudent way to trade the announcement itself, profiting from a large move in either direction. From a technical standpoint, we should use the 93.00 level as a key trigger point for new long positions. A convincing break above this 20-day EMA would signal that the bullish momentum for USD/INR is resuming. This could be our signal to add to long futures positions, with an initial target of the April 2 high at 93.66. Create your live VT Markets account and start trading now.

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Gold (XAU/USD) rose during the European session on Monday, reaching about $4,700 after dip-buying near $4,600. Bloomberg, citing Axios, reported talks involving the US, Iran, and regional mediators on terms for a possible 45-day ceasefire. Crude Oil hit a nearly four-week high after US President Donald Trump threatened to target Iran’s power plants and bridges if the Strait of Hormuz is not reopened by Tuesday. Tehran said transit could resume if part of the revenue is allocated to compensate Iran for war-related damages.

Geopolitical And Rate Backdrop

Ali Akbar Velayati, an advisor to Iran’s new Supreme Leader, Mojtaba Khamenei, warned the Bab el-Mandeb Strait could be targeted. The US Nonfarm Payrolls report on Friday was strong, adding to expectations that the Federal Reserve may keep rates higher for longer. Traders are watching whether price falls below $4,600, after a rebound from about $4,100, a four-month low in March. The US ISM Services PMI is due later, with thin liquidity due to the Easter Monday holiday in many markets. Technically, $4,600 is the 38.2% Fibonacci level, with price below the 200-period 4-hour EMA. MACD is below its signal but both are just above zero; RSI is 52, with resistance at $4,758, then $4,791 and $4,913, while support sits near $4,411 and $4,300. We are seeing gold get a temporary lift from ceasefire talks, which is weakening the US dollar for the moment. However, the bigger story is still the threat of higher global interest rates, which caps how high a non-yielding asset like gold can realistically go. This situation presents an opportunity to fade this rally rather than chase it.

Inflation And Oil Shock Risk

The main headwind for gold is the persistent inflation driven by high energy prices. We remember how inflation remained stubbornly above 3% for much of 2025, forcing the Federal Reserve to keep interest rates elevated. Last Friday’s strong US jobs report only reinforces the idea that the Fed has no reason to cut rates soon, which should ultimately support the dollar and weigh on gold. The geopolitical risk in oil markets is what’s fueling these inflation fears, making the Fed’s job harder. With the Strait of Hormuz accounting for about 20% of the world’s daily oil consumption, threats to this chokepoint keep crude prices high and directly pressure global inflation. Historically, we’ve seen oil shocks like this, such as the disruptions in the Red Sea during 2024, lead to prolonged periods of central bank hawkishness. Given this conflict between a short-term geopolitical bounce and a bearish macroeconomic backdrop, we should consider selling this strength. Establishing bearish positions using options, like selling call spreads with strike prices above the $4,758 and $4,791 resistance levels, could be a prudent strategy. This allows us to profit if gold fails to break higher in the coming weeks. The key level to watch is $4,600. A decisive break and hold below this price would signal that the recent bounce has failed and the broader downtrend is resuming. If that happens, we would look to add to bearish positions or buy puts, targeting the next support level around $4,411. For now, any news on the ceasefire talks will create short-term volatility, but the upcoming US ISM Services data will be more important for the medium-term trend. A strong reading would confirm the economy’s resilience and likely strengthen the US dollar, putting immediate pressure back on gold prices. We need to stay focused on the inflation and interest rate narrative, as it will overpower these temporary news-driven moves. Create your live VT Markets account and start trading now.

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EUR/USD rose 0.4% to near 1.1560 in European trading on Monday after Iran confirmed it had received a US ceasefire proposal via Pakistan. The improved mood reduced demand for the US Dollar as a safe haven. The US Dollar Index fell almost 0.4% to about 99.80 and moved below 100.00 after being steady above 100.00 in Asian trade. Iran said it would not accept the proposal under pressure or deadlines.

Strait Of Hormuz Risk

Tehran also said it would not reopen the Strait of Hormuz in return for a temporary ceasefire. The strait handles about 20% of global oil supply. Markets are waiting for the US ISM Services PMI for March at 14:00 GMT, expected at 55.0 versus 56.1 previously. The week also includes the March FOMC minutes on Wednesday and US CPI data for March on Friday. EUR/USD traded near 1.1560 and sat just below the 20-day EMA near 1.1570. A symmetrical triangle near the bottom points to a sideways phase, while the 14-day RSI moved into the 40.00–60.00 range from below 40.00. Resistance levels are seen at 1.1570, 1.1600, then 1.1660 if 1.1600 is cleared. Support is near 1.1500, then the late-1.14 area, with 1.1450 and 1.1411 as further downside levels.

Options Positioning Ideas

We are seeing the market’s mood improve today, pushing EUR/USD towards 1.1560 as geopolitical tensions seem to ease with the US-Iran ceasefire proposal. This has caused the US Dollar Index to dip below the psychologically important 100.00 mark, as traders move away from safe-haven assets. This shift provides a short-term opportunity, but Iran’s hesitation on the deal introduces significant uncertainty. We should be watching oil prices very closely, as Iran is refusing to immediately reopen the Strait of Hormuz. We saw in the early 2020s how even minor disruptions in this channel, which handles nearly a fifth of global petroleum liquids, can cause oil prices to spike and send traders rushing back to the safety of the US dollar. A sudden reversal in sentiment is a real risk if these talks stall. Given the symmetrical triangle pattern forming, one strategy is to position for a potential breakout to the upside in EUR/USD. Buying call options with a strike price just above the 1.1600 resistance level could be a cost-effective way to play a bullish reversal. This allows us to capitalize on upward momentum if the pair decisively breaks its recent downtrend. However, we must also hedge against the possibility of this being a false dawn. Purchasing put options with a strike price below the 1.1500 support level would protect our positions if the ceasefire talks collapse or if upcoming US data is stronger than expected. This creates a balanced position ahead of a volatile week. The US ISM Services PMI data due later today will offer the first clue on the economy’s health. While the forecast of 55.0 is a slight dip, any reading above 50 still signals a robustly expanding services sector, which could temper the dollar’s recent weakness. The real focus, however, will be the FOMC minutes on Wednesday and the US CPI inflation data on Friday. We remember how surprisingly persistent inflation data throughout 2024 kept the Federal Reserve on a hawkish path, causing the dollar to strengthen significantly against the euro. This week’s CPI report will be critical in showing whether that inflationary pressure has truly subsided. A higher-than-expected number could quickly erase all of the euro’s recent gains. Create your live VT Markets account and start trading now.

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EUR/JPY recovered earlier losses and traded near 184.40 in European hours on Monday. The daily chart shows sideways movement within an ascending triangle, which points to consolidation. Price is holding above the 50-day Exponential Moving Average and using the nine-day EMA as support. The nine-day EMA remains above the 50-day EMA, while the 14-day RSI is 55.36, staying above 50.

Key Resistance And Breakout Levels

Resistance sits near the top of the triangle around 184.70. A move above the triangle could open the way towards the all-time high of 186.88, set on 23 January. Support is at 184.00, then the nine-day EMA at 183.94. Below that are the 50-day EMA at 183.46 and the triangle base near 182.90. A break below the triangle could tilt conditions lower and bring 180.81 into view. That level marks a nearly four-month low recorded on 12 February. With the EUR/JPY consolidating around 184.40, we see the market coiling within an ascending triangle, which often precedes a significant price move. This technical pattern suggests traders should prepare for a breakout by using options to manage risk and capitalize on the expected increase in volatility. The current setup, holding above the 50-day moving average, maintains a slight bullish advantage.

Options Strategies For A Volatility Breakout

For a bullish continuation, we are watching for a decisive break above the 184.70 resistance level. A move past this point would signal a run towards the January 2026 high of 186.88, making call options with a 185.00 strike price an attractive strategy for the coming weeks. This outlook is supported by recent data showing Eurozone core inflation remained persistent at 2.9% in March 2026, suggesting the European Central Bank may be slower to cut rates than previously thought. Conversely, a failure to hold the triangle could lead to a sharp decline, and we must be prepared for this outcome. A break below the lower trendline at 182.90 would be a strong bearish signal, creating an opportunity to use put options to target the February 2026 low near 180.81. This would represent a significant shift in market sentiment, likely driven by a change in tone from the Bank of Japan. Given the uncertainty of the breakout’s direction, a volatility play could be the most prudent approach. A long straddle, which involves buying both a call and a put option near the current price, would profit from a strong move in either direction. This strategy is ideal as the pair’s Average True Range (ATR) has been contracting, indicating a breakout is becoming more likely. The underlying fundamentals still favor a strong euro over a weak yen, a trend we saw dominate markets throughout 2025. The Bank of Japan has only just begun to normalize its policy, while the ECB maintains a significant rate advantage, making the carry trade a persistent source of support for the pair. Therefore, any dips toward the lower end of the triangle might be viewed by the broader market as a buying opportunity. Create your live VT Markets account and start trading now.

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EUR/USD rose 0.4% to about 1.1560 in European trading on Monday after Iran confirmed it received a US ceasefire proposal via Pakistan. Risk appetite improved and demand for the US Dollar as a safe haven eased. The US Dollar Index fell almost 0.4% to around 99.80, after holding above 100.00 in Asia. Iran said it will not accept the proposal under pressure or deadlines.

Ceasefire Signals And Market Reaction

Tehran also said it will not reopen the Strait of Hormuz in exchange for a temporary ceasefire. The strait is a route for 20% of global oil supply. Markets are waiting for the US ISM Services PMI for March at 14:00 GMT. It is forecast at 55.0, down from 56.1. Later this week, the FOMC minutes from the March meeting are due on Wednesday and US CPI for March is due on Friday. EUR/USD is trading just under the 20-day EMA near 1.1570. Chart levels cited include resistance at 1.1570, 1.1600 and 1.1660, and support near 1.1500, 1.1450 and 1.1411, with a reference low at 1.1408. The RSI is described as moving into the 40.00–60.00 range from below 40.00.

Dollar Dominance And Fed Framework

The US Dollar is the most traded currency, making up over 88% of global FX turnover, or about $6.6 trillion per day in 2022. It became the main reserve currency after the Second World War, and left the gold standard after the Bretton Woods Agreement in 1971. The Federal Reserve guides policy with mandates for price stability and full employment, using interest rates and tools such as QE and QT. The Fed targets 2% inflation. We recall how this time in 2025, hopes of a US-Iran ceasefire briefly improved market mood, pushing EUR/USD towards 1.1560. The improved risk appetite caused the Dollar Index to dip below 100 as traders bet on a less volatile global outlook. This period was heavily influenced by geopolitical headlines rather than pure economic fundamentals. Today, the landscape is starkly different as the focus has shifted from geopolitical optimism to stubborn economic data. We see the EUR/USD trading much lower, currently around 1.0855, with the Dollar Index firm above 104.50. The market’s primary driver is no longer Middle East diplomacy but core inflation figures. We have just seen the March 2026 Consumer Price Index (CPI) report come in at a stubborn 3.4%, well above the Federal Reserve’s 2% goal. Combined with another strong jobs report showing 285,000 new payrolls, the data supports a “higher for longer” interest rate stance from the Fed. This fundamental picture provides a strong tailwind for the US Dollar. That symmetrical triangle reversal we watched for in 2025 clearly failed to materialize as fundamental pressures took over. With the Fed likely on hold, implied volatility on EUR/USD options has compressed, with the VIX index hovering near a two-year low of 13.5. Traders should consider strategies that benefit from this environment, such as selling out-of-the-money puts on the dollar or setting up bearish call spreads on the EUR/USD to capitalize on range-bound action. Looking ahead, the minutes from the March 2026 FOMC meeting will be critical for gauging the committee’s patience with inflation. Any hawkish surprises could easily push the Dollar Index toward the 105.50 resistance level last seen in late 2025. Therefore, positioning for continued dollar strength against the euro seems prudent until we see a definitive shift in the inflation data. Create your live VT Markets account and start trading now.

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EUR/JPY steadied after the prior day’s fall and traded near 184.40 during European hours on Monday. The daily chart shows sideways movement within an ascending triangle, pointing to consolidation. Price remains above the 50-day Exponential Moving Average and continues to use the nine-day average as support. The nine-day average is still above the 50-day measure, while the 14-day Relative Strength Index is 55.36, above the 50 level.

Key Resistance Levels

Resistance is near the top of the triangle at about 184.70. A move above this area could open the way towards the record high of 186.88, set on 23 January. Support is first seen at 184.00, then at the nine-day EMA of 183.94. Further levels are the 50-day EMA at 183.46 and the triangle base near 182.90. A break below the triangle could shift the balance lower. This may bring a retest of 180.81, a near four-month low posted on 12 February. We see the current sideways movement in EUR/JPY as a period of consolidation before a larger move. This is supported by the European Central Bank holding rates steady last month after March inflation printed at 2.1%, while the Bank of Japan’s latest meeting minutes revealed continued caution about policy normalization. The ascending triangle pattern points to a potential breakout as these central bank policies continue to diverge.

Trading Scenarios And Triggers

For those positioned for an upward move, a sustained break above the 184.70 resistance level is the key trigger for considering long positions, such as buying call options. This would open the path to retest the January 2026 high around 186.88. The Relative Strength Index at 55.36 indicates there is enough buying interest to support such a move without the market being overextended. Conversely, a failure to hold support presents an opportunity for bearish plays, like buying put options. A decisive drop below the triangle’s lower boundary at 182.90 would signal a significant shift in momentum. This could push the pair down toward the February 2026 low of 180.81. Given the tightening price action, we believe an increase in volatility is imminent, making this an interesting setup for options traders. Strategies that profit from a large price move, regardless of direction, could be considered. Looking back at 2025, we saw how similar consolidation patterns preceded sharp moves when the Bank of Japan first signaled its initial policy shifts away from negative rates. Immediate attention should be on the 184.00 psychological level and the nine-day moving average just below it at 183.94. These levels can serve as tight triggers for entry or stop-loss adjustments on short-term derivative positions. The 50-day moving average at 183.46 remains the more significant line of defense for the current mild bullish bias. Create your live VT Markets account and start trading now.

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BNY reported an oil supply shock, with front-month Brent rising above $140 while forward prices stayed much lower. It said this shape in the pricing curve tightens global financial conditions. It stated that a long disruption to oil, LNG and other war-linked goods could lead to a global recession. Using a world GDP assumption of $100tn, it put the 2026 energy bill at $4.6tn, or 4.6%, up from 3% in 2025.

Regional Recession Risk And Stagflation

It said recession risk is rising but varies by region, with Asia described as more exposed than the US. It also said stagflation is becoming the main economic scenario in many regions, and that relative growth spreads may matter more than interest rates for Q2 allocations. It said government subsidies and rationing to soften energy shocks could add to budget strain and bond volatility. It reported that 20 nations have introduced energy measures, with more expected if the conflict lasts beyond April. It cited estimates of fiscal drag at 1.5–3% of GDP worldwide. It also described an alternative scenario of shipping resuming by month-end, contrasted with further disruption through April. With front-month Brent crude holding above $140 a barrel, the severe backwardation in the market signals an acute, immediate shortage. We must consider calendar spread trades to capitalize on this, but the high volatility makes entry timing critical. This is a more aggressive supply shock than what we experienced back in 2025.

Derivative Positioning And Volatility Strategy

The binary risk of the disruption ending by month-end makes outright directional bets dangerous. The oil volatility index, the OVX, has surged past 60, reflecting extreme uncertainty not seen since early 2022. The clearest derivative play is to buy volatility through options, such as straddles on oil futures, to profit from a large price move in either direction. Stagflation is now the baseline scenario, creating opportunities in currency markets. With Asia more vulnerable to this energy shock than the United States, we should look at options to short Asian currencies against the US dollar. This reflects the widening growth differential that will likely dominate interest rate stories this quarter. Government subsidies are adding stress to sovereign debt, which we can see in widening bond spreads for energy-importing nations. Trading interest rate futures and options on government bonds allows us to position for rising yields and increased volatility. The fiscal drag, now estimated at over 2% of GDP for many countries, is not yet fully priced into bond markets. In equities, the divergence between sectors will accelerate. We should use options to build positions that favor energy producers over consumer-focused and industrial companies that face margin compression from higher input costs. A simple pairs trade, long an energy ETF and short a consumer discretionary ETF, is a direct way to play this theme. The “wait-and-see” posture is pushing up the cost of options, with implied volatility at multi-year highs. This means any positions must be carefully structured, as time decay will be punishing if the market stagnates. For us, using option spreads can help reduce the cost of entry while still providing exposure to the expected price swings in the coming weeks. Create your live VT Markets account and start trading now.

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Iran confirmed it received a US ceasefire proposal via Pakistan and said it is reviewing it, according to Reuters citing a senior Iranian official. Iran said it will not accept any proposal under pressure or deadlines. The official said Tehran has received Pakistan’s proposal and it is under review. Iran said it will not reopen the Strait of Hormuz in exchange for a “temporary ceasefire”, and said it believes the US is not ready for a permanent ceasefire.

Market Reaction To Ceasefire Review

After the acknowledgement, the US Dollar weakened. The US Dollar Index (DXY) was down 0.2% to near 100.00 at the time of reporting. WTI oil also fell following the statement. WTI was down 1.6% to near $102.00. In markets, “risk-on” and “risk-off” describe how much risk market participants are willing to take. Risk-on is linked to buying riskier assets, while risk-off is linked to moving towards safer assets. Risk-on periods are often associated with rising equities, gains in most commodities except gold, stronger commodity-linked currencies, and higher cryptocurrencies. Risk-off periods are often associated with stronger bonds, higher gold, and demand for the US Dollar, Japanese Yen, and Swiss Franc.

Implications For Risk On Risk Off Trading

The Australian Dollar, Canadian Dollar, and New Zealand Dollar often strengthen in risk-on conditions. The US Dollar, Japanese Yen, and Swiss Franc often strengthen in risk-off conditions. We recall that in 2025, Iran’s confirmation that it was reviewing a ceasefire proposal marked a significant turning point in market sentiment. This news initiated a classic “risk-on” shift as traders began pricing out the worst-case conflict scenarios. The immediate reaction we saw was a weaker US Dollar and a sharp drop in oil prices. The fall in WTI crude from over $102 a barrel back then demonstrated how much geopolitical risk premium was built into the price. With WTI now trading in a more stable range near $85 a barrel, according to recent Energy Information Administration (EIA) reports, that premium is gone. In the coming weeks, this suggests that selling out-of-the-money call options on crude is a viable strategy, capitalizing on continued market stability. This de-escalation continues to suppress market volatility, which directly impacts options pricing. The CBOE Volatility Index (VIX), which we saw spike above 25 during the height of tensions in 2025, has since fallen and is currently holding near a 12-month low of 14.5. Traders should consider strategies that benefit from this low-volatility environment, as it makes buying protection relatively cheap and selling premium attractive. The US Dollar Index (DXY) has struggled since it broke below the key 100.00 level following the 2025 ceasefire news. As capital continues to seek higher returns in a less fearful world, the dollar’s status as a primary safe-haven is diminished. We see this trend continuing, supporting bearish derivative positions on the dollar against a basket of other major currencies. Consequently, commodity-linked currencies are benefiting from the improved global outlook. The Australian and Canadian dollars have shown steady gains against the USD over the past six months, a trend we expect to persist amid stable commodity demand. This environment favors strategies like buying call options on these currencies to profit from their anticipated continued strength. Create your live VT Markets account and start trading now.

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Iran confirmed it received a US ceasefire proposal via Pakistan and said it is reviewing it, according to Reuters citing a senior Iranian official. Iran said it will not accept any proposal under pressure or set deadlines. Tehran said it has received Pakistan’s proposal and it is under review. It also said it will not reopen the Strait of Hormuz in exchange for a “temporary ceasefire”, and it believes the US is not ready for a permanent ceasefire.

Market Reaction And Immediate Price Moves

After Iran’s acknowledgement, the US Dollar Index (DXY) was down 0.2% to near 100.00. WTI oil also fell, down 1.6% to near $102.00. In market terms, “risk-on” describes periods when market participants favour higher-risk assets, while “risk-off” describes a shift towards safer assets. Risk-on is often linked with rising shares, most commodities excluding gold, stronger commodity-linked currencies, and higher crypto prices. Risk-off is often linked with higher bond prices, stronger gold demand, and gains in safe-haven currencies such as the US Dollar, Japanese Yen, and Swiss Franc. Commodity-linked currencies that often rise in risk-on phases include the Australian Dollar, Canadian Dollar, New Zealand Dollar, plus the Ruble and South African Rand. We remember looking back to 2025 when the mere rumor of a US-Iran ceasefire proposal sent oil prices down and weakened the dollar. This highlighted the market’s sensitivity to geopolitical de-escalation, triggering a brief “risk-on” sentiment. That temporary relief shows just how quickly risk premiums can evaporate from asset prices.

Strait Of Hormuz Supply Risk

Since those talks ultimately failed, the situation has become more tense, with renewed focus on the Strait of Hormuz. Roughly 21% of the world’s daily oil supply passes through this narrow channel, so any disruption would have an immediate and severe impact on global energy prices. This unresolved tension means the market is currently under-pricing the risk of a sudden supply shock. Derivative traders should consider buying call options on WTI crude for the coming months. This strategy allows for exposure to a potential price spike above $110-$120 per barrel, similar to the surges seen during past Middle East conflicts, while capping the potential loss to the option’s premium. It is a defined-risk way to position for a high-impact event. We should also anticipate a rise in overall market volatility, meaning options will become more expensive across the board. The VIX index, which measures expected volatility, jumped over 30 during the Red Sea shipping disruptions in late 2023, and a direct conflict could push it above 40. Buying VIX call options or VIX futures can be an effective hedge against a broad market downturn triggered by such a crisis. As the original analysis noted, a true crisis would trigger a “risk-off” move, strengthening safe-haven currencies. Unlike the temporary dip we saw in 2025 on ceasefire news, a real conflict would see investors flock to the US Dollar. We could see the US Dollar Index (DXY) push toward the 107.00 level it reached during the market stress of late 2023. This means we should be cautious with commodity-linked currencies like the Australian and Canadian dollars. A surge in oil prices caused by conflict would likely signal a global economic slowdown, reducing demand for other commodities and weakening these currencies against the US dollar. Short positions on AUD/USD or long positions on USD/CAD could perform well in such a scenario. Create your live VT Markets account and start trading now.

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