Switzerland’s ZEW survey showed a drop in expectations in March. The index fell from 9.8 in the previous reading to -35. The latest result indicates weaker expectations compared with the prior month. No further figures were provided in the update. The sudden drop in Swiss economic expectations from a positive 9.8 to a deeply negative -35 is a major red flag for the coming weeks. This sharp reversal in sentiment among financial analysts suggests we should immediately prepare for increased downside risk in Swiss assets. It points towards a significant deterioration in the six-month outlook for the economy. Given this negative domestic forecast, we expect the Swiss Franc (CHF) to weaken against major currencies like the euro and the dollar. Traders should consider buying put options on CHF currency futures or structuring trades that benefit from a higher EUR/CHF exchange rate. The franc’s traditional safe-haven appeal is likely to be overshadowed by concerns over the local economy’s health. For the stock market, this sentiment plunge is a strong bearish signal for the Swiss Market Index (SMI). We should be looking to buy put options on the SMI or on major export-oriented Swiss companies that are sensitive to economic cycles. This provides a direct way to profit from the anticipated downturn that the ZEW survey is now forecasting. This survey result does not exist in a vacuum, as recent data supports this pessimistic view. Swiss manufacturing PMI for February already slipped to 49.1, its first move into contractionary territory in over a year. Coupled with recent inflation figures remaining stubbornly above the central bank’s target, this points to a risk of stagflation. Such a drastic shift in expectations will almost certainly lead to higher market volatility. We should anticipate a rise in the VSMI, the Swiss volatility index, from its current levels. Buying straddles or strangles on the SMI can be an effective strategy to capitalize on the larger price swings we now expect. This rapid decline in confidence is reminiscent of the market jitters we saw in late 2025 when global supply chain issues resurfaced. However, the current situation feels more acute as the pessimism is centered directly on the Swiss domestic outlook. This suggests the potential impact on local assets could be more severe than what we experienced then. The market will now likely price in a more dovish stance from the Swiss National Bank, reducing the probability of any further interest rate hikes this year. We can use interest rate derivatives to position for this, anticipating that the SNB may be forced to hold or even cut rates to support the economy. This is a significant change from the hawkish expectations we held just a month ago.

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Gold held a positive tone in the European session but stayed below the weekly high near $4,600. Price action remained sensitive to developments in the US–Iran conflict, with volatility expected to stay elevated. Diplomatic efforts were reported to be seeking a one-month ceasefire to support US–Iran talks. US President Donald Trump delayed planned strikes on Iran’s energy infrastructure by five days, and said Iran offered a “present” linked to energy flows through the Strait of Hormuz.

Gold Market Drivers

These reports weighed on crude oil and eased near-term inflation fears, supporting demand for non-yielding gold. Gold’s rebound followed a move up from the 200-day SMA near $4,100, described as a four-month low. At the same time, conflict activity continued, including Israeli strikes, Iran missile launches, and repeated drone and missile interceptions in Gulf countries, with fighting intensifying in Lebanon and Iraq. The Trump administration directed thousands of soldiers from the US Army’s 82nd Airborne Division to the Middle East. Markets have nearly fully priced out further US Federal Reserve rate cuts and have increased bets for a hike by year-end, supporting the US dollar. Technically, gold faced resistance near the 38.2% Fibonacci retracement; a break above $4,600 targets $4,637 and the mid-$4,750 area, while support sits at $4,470 and $4,401, then $4,250–$4,300. Looking at the situation from earlier this month, the primary tension for gold is between hopes for a US-Iran ceasefire and the reality of ongoing military actions. Gold’s recent bounce from the $4,100 level shows underlying strength, but its failure to decisively break $4,600 reflects significant market uncertainty. This creates a challenging environment where any headline could trigger a major price swing. Given the elevated volatility, we believe traders should consider strategies that profit from large price movements, regardless of direction. Buying at-the-money straddles or strangles in the coming weeks could be effective, as a definitive outcome—either a peace deal or a significant escalation—would likely push gold well outside its current range. We saw a similar dynamic during the US-Iran tensions in early 2020, when the Gold Volatility Index (GVZ) jumped over 30% in just a few days as traders hedged against geopolitical shocks.

Options Strategies For Volatility

For those with a bullish bias, a cautious approach is warranted until gold clears the $4,600 resistance. Rather than buying futures outright, using bull call spreads would allow traders to participate in a potential rally towards the mid-$4,750s while defining and limiting risk. This strategy protects capital should the diplomatic efforts fail and the hawkish Fed narrative regain control of the market. The strengthening US Dollar, fueled by expectations of a Fed rate hike, remains a significant headwind for gold. The CME FedWatch tool now shows the market is pricing in a nearly 70% probability of a rate hike by the end of the year, a stark contrast to sentiment just a quarter ago. This hawkish shift is supporting the dollar and will likely cap any major gold rally that isn’t driven by a new geopolitical flare-up. Traders should also prepare for a breakdown in negotiations, which would likely see gold retest key support levels. Buying puts or establishing bear put spreads could serve as a valuable hedge for long positions, especially if the price breaks below the critical $4,401 support zone. The reports of additional US troop deployments and continued missile fire from earlier this month suggest the situation remains highly unstable. The conflict’s impact on crude oil adds another layer of complexity, directly influencing inflation expectations. A disruption in the Strait of Hormuz could cause an oil price spike similar to what we saw after the invasion of Ukraine in 2022, when Brent crude jumped over 30% in two weeks. Such an event would force central banks to consider an even more aggressive stance on interest rates, creating further cross-currents for the gold market. Create your live VT Markets account and start trading now.

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Dow Jones futures rose 0.7% to near 46,750 during European hours on Wednesday, ahead of the US market open. S&P 500 futures gained 0.6% to near 6,650, while Nasdaq 100 futures increased 0.63% to around 24,360. US stock futures moved up after reports that the US submitted a proposal linked to ending conflict in the Middle East. Talks were reported to focus on a one-month truce, ahead of formal negotiations between Washington and Tehran, and a 15-point plan was mentioned.

Middle East Proposal Drives Futures Higher

Iranian officials denied any formal breakthrough, while a senior source said indirect communication channels remain open. Reports said messages were passed via Pakistan, and an in-person meeting could take place in the coming days. In regular US trading on Tuesday, the Dow Jones fell 0.18%, the S&P 500 dropped 0.38%, and the Nasdaq 100 slid 0.84%. Earnings due on Wednesday include PDD Holdings Inc, Cintas Corporation, and Paychex, Inc. Chicago Fed President Austan Goolsbee said energy shocks could affect both sides of the Fed’s mandate and that rate-cut timing depends on the conflict and inflation progress. Fed Governor Michael Barr said rates may need to stay unchanged for some time, with inflation above the 2% target and risks linked to the conflict. Looking back at this time in 2025, we remember the market being pulled between geopolitical hopes and Fed warnings. The potential for a US-Iran ceasefire created upward pressure on futures, but underlying caution kept a lid on any real rally. This created a tense, range-bound market where big moves were quickly retraced.

Energy Inflation And Volatility Lessons

That caution from Fed officials like Goolsbee and Barr proved justified, as the energy shock they feared did materialize in the second quarter of 2025. We saw WTI crude oil prices spike over 15% between April and June of last year, pushing headline inflation back up temporarily. This delayed the Fed’s pivot and rewarded traders who were long oil futures or held call options on energy sector ETFs. The uncertainty last year was a major driver of options pricing, with implied volatility climbing significantly. We saw the VIX, a key measure of market fear, jump from the mid-teens to over 22 on several occasions following conflicting reports out of the Middle East. This made buying protective puts on indexes like the S&P 500 a profitable, albeit expensive, strategy during that period. As we stand today, the situation has evolved considerably, though memories of 2025 linger. Inflation has finally shown more consistent progress, with the latest core PCE data for February 2026 coming in at an annualized 2.6%, much closer to the Fed’s target. This is a significant improvement from the 3.4% we were still seeing at this point in 2025. This improved inflation picture means the Fed’s hands are less tied than they were last year. While the market priced in only one or two potential rate cuts for the whole of 2025, current pricing on Fed funds futures suggests at least a 70% probability of a first cut by this year’s July meeting. This shift in expectation is a critical change from the “higher for longer” narrative we faced twelve months ago. Therefore, for the coming weeks, the focus should shift from hedging against geopolitical shocks to positioning for monetary policy easing. We see value in strategies that benefit from declining interest rates, such as buying call options on long-duration Treasury bond ETFs. It may also be time to consider selling volatility, as the probability of a major external shock appears lower now than it did throughout much of 2025. Create your live VT Markets account and start trading now.

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BNY’s Geoff Yu said developed market central banks, mainly in Europe, may not deliver all the rate rises priced in, as household demand weakens. Officials from the Federal Reserve, Bank of England and European Central Bank have questioned current rate pricing, citing uncertainty over energy prices and differences between today and 2022 to 2023. The article says household demand is already weaker and may fall further as a second-round effect of the conflict. It adds that central banks have issued stagflation warnings in response to these conditions.

Sector Flows Since The Conflict

iFlow data show consumer discretionary has been the worst-performing developed market sector since the start of the conflict. The article links this to faster cutbacks in spending during a supply shock. It also says sectors able to pass on higher energy costs have seen better flows. Utilities is described as a strong performer in both developed and emerging markets, while EM hedge ratios are expected to remain elevated. We are skeptical that central banks, particularly in Europe, will deliver the interest rate hikes currently priced into the market. Officials are highlighting economic uncertainty, a clear shift from the aggressive hiking cycle we saw back in 2022 and 2023. Given this, traders should consider positions that will benefit if future rates do not rise as much as expected, such as buying futures on German Bunds. The core reason for this central bank hesitancy is weakening household demand, a major aftershock from the recent conflict. The latest consumer confidence reports from early March 2026 showed a dip to 65.2, well below forecasts and a sign that wallets are closing. This stagflationary environment is very different from the post-pandemic recovery, meaning central banks have less room to tighten policy.

Trade Implications And Positioning

This consumer weakness directly translates into poor performance for the consumer discretionary sector, which makes it an attractive target for short positions. Traders can buy put options or sell futures on indices heavy with companies that sell non-essential goods. Year-to-date performance confirms this, with discretionary-focused ETFs like XLY already down over 7% since January. On the other hand, we see opportunity in sectors that can pass higher costs onto consumers, especially utilities. These businesses are defensive and benefit from inelastic demand, attracting investment flows as a safe haven. Long positions, through call options on an ETF like XLU which is already up 4% this year, seem sensible. The divergence between these sectors suggests a pairs trade could be effective, going long utilities while shorting consumer discretionary. This strategy isolates the effect of weakening consumer demand from broader market moves. For emerging markets, while flows look better, we advise using options to hedge any long positions given the elevated uncertainty. Create your live VT Markets account and start trading now.

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UK inflation met forecasts, with headline CPI at 3%. Core CPI was slightly higher than the consensus view, linked to stronger services inflation. Services CPI rose due to increases in private rents, travel prices and accommodation prices. The Monetary Policy Committee’s position remains broadly in line with its March decision.

Rising Input Costs

Fuel, energy and other input costs are rising, which may lift inflation again. Pump prices rose by nearly 7% in March and are expected to rise by a similar amount in April. Dual fuel bills in July are expected to rise by near 30%. Fertiliser prices are rising, and shipping costs are surging, which may feed into other parts of the CPI basket. Deutsche Bank expects CPI to return to 3% and peak near 3.5% year-on-year later this year, with the exception of Q2 2026. It says this path reduces the scope for Bank of England rate cuts in 2024 and raises the risk of further tightening. The latest UK inflation data shows that price pressures remain persistent, challenging the disinflation narrative. Core inflation has proven particularly sticky, driven higher by strong price growth in the services sector. This mirrors a pattern we saw in 2024, suggesting the final mile of getting inflation down will be the hardest.

Rates Higher For Longer

Looking ahead, we are facing another difficult turn as energy costs are rising sharply. With Brent crude oil recently climbing above $95 a barrel, pump prices are set to increase, and wholesale natural gas futures are up nearly 20% this month. This surge in energy threatens to push headline inflation back towards 3% later this year. This evolving situation should put to rest any expectations for imminent Bank of England rate cuts. Markets are already adjusting, with pricing based on SONIA futures now indicating that a rate cut in the first half of the year is almost completely off the table. Traders should position for a higher-for-longer interest rate environment, meaning bets on falling rates are now very risky. In the coming weeks, a key strategy will be to use interest rate options to protect against, or profit from, rates remaining elevated. For instance, buying SONIA futures puts or selling calls can be an effective way to position for the Bank of England maintaining its restrictive stance through the summer. This hawkish repricing should also provide support for the pound sterling. Therefore, traders should be cautious about holding short sterling positions in the foreign exchange markets. The prospect of the UK maintaining higher interest rates than its peers, like the European Central Bank, could drive capital flows into the pound. Positioning for sterling strength against the euro, through spot or options contracts, could be a logical response to this divergence. Create your live VT Markets account and start trading now.

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WTI rose after two days of falls and traded near $88.00 per barrel in early European trading on Wednesday. Prices later eased as supply worries softened after reports of a US proposal to end the Middle East conflict. Diplomatic contacts were reported to be moving towards a one-month truce to allow formal talks between Washington and Tehran. Reports said the Trump administration presented Iran with a 15-point plan, while Iranian officials said there was no formal breakthrough and that indirect channels remain in use.

Strait Of Hormuz Developments

Iran told the UN Security Council and the International Maritime Organization that “non-hostile vessels” may pass through the Strait of Hormuz if they coordinate with Iranian authorities, Reuters reported. Military action continued between the US, Israel, and Iran, with reports that Washington is preparing to send more troops to the region. To reduce the risk of disruption through Hormuz, Saudi Arabia raised exports from its Red Sea Yanbu port to nearly 4 million barrels per day, above pre-conflict levels. The API said US weekly crude stocks rose by 2.3 million barrels in the week ended 20 March, versus expectations for a 1.3 million-barrel fall. The market is presenting conflicting signals, with the WTI price near $88 balancing geopolitical risk against a surprise inventory build. This suggests that implied volatility in crude options is likely to remain elevated in the coming weeks. We believe strategies that profit from price swings, rather than a specific direction, should be considered. The CBOE Crude Oil Volatility Index (OVX) recently climbed to 45.2, a level reflecting significant market uncertainty about the near-term future of oil prices. The unexpected 2.3 million barrel stock build reported by the API, if confirmed by the EIA later this week, would add to a month-long trend where U.S. commercial inventories have swelled by over 12 million barrels, pressuring prices downward.

Positioning For Volatility

We see a clear divergence between ceasefire hopes and the reality of ongoing military deployments. We saw a similar dynamic back in the fourth quarter of 2025, where an initial price spike from regional fears was quickly erased once it became clear that key shipping lanes would remain open. A long straddle, which profits from a significant move in either direction, could be a prudent way to position for a binary outcome like a sudden peace deal or a sharp escalation. Saudi Arabia’s move to boost Red Sea exports to nearly 4 million bpd provides a significant buffer against potential disruptions in the Strait of Hormuz. This action, combined with OPEC+ holding firm on its production cuts of 2.2 million bpd, creates a complex supply picture. This makes options spreads, which can limit risk while targeting a specific price range, an attractive alternative to outright long or short positions. Create your live VT Markets account and start trading now.

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European markets were firmer early on Wednesday, March 25, with attention on reports about a possible one-month ceasefire linked to a 15-point plan tied to reopening the Strait of Hormuz. Germany’s IFO sentiment data is due, while the US later releases February Export Price Index and Import Price Index figures. On Tuesday, the US Dollar Index eased from intraday highs after the report and finished virtually unchanged. Early Wednesday, Iran’s Revolutionary Guards said they fired missiles at Israel and at military bases hosting US forces in Kuwait, Jordan and Bahrain, while a foreign ministry spokesperson dismissed claims of negotiations.

Market Backdrop And Key Levels

In Europe on Wednesday, the US Dollar Index held moderate gains near 99.40 and US stock index futures rose 0.6% to 0.7%. WTI traded near the bottom of the weekly range and stayed well below $90 a barrel. UK CPI inflation was steady at 3% in February, with core CPI at 3.2% versus 3.1% expected, and the Retail Price Index up 0.4% month on month. GBP/USD traded below 1.3400, AUD/USD fell about 0.5% near 0.6960 as Australia’s CPI eased to 3.7% from 3.8%, while EUR/USD stayed below 1.1600 and gold rose over 1.5% above $4,500. We remember this time last year, in March 2025, when the market was torn between hopes of a ceasefire and the reality of missile strikes in the Middle East. That initial optimism was followed by months of heightened tension that created significant volatility. This pattern taught us that headline risk from the region has a lasting impact beyond the initial news cycle. The optimism that pushed West Texas Intermediate crude below $90 a barrel in March 2025 proved to be short-lived. As ceasefire talks stalled by mid-2025, persistent supply fears around the Strait of Hormuz drove prices up, with WTI averaging over $100 per barrel in the second half of the year. Traders should therefore view any dips in oil prices as potential buying opportunities, using call options to position for price spikes caused by renewed geopolitical friction. Last year’s stubborn UK core inflation reading was a key signal, keeping the Bank of England from cutting rates as many had hoped through 2025. This is a major reason why GBP/USD has struggled to reclaim the 1.3400 level we saw then. With the US Dollar Index having since climbed from the 99s to trade consistently above 104, traders should be wary of fighting the dollar’s underlying strength as a primary safe-haven asset.

Portfolio Positioning And Hedging

The upbeat mood in stock futures a year ago was a lesson in looking past immediate geopolitical noise for underlying economic strength. Despite the ongoing tensions, the S&P 500 still managed to post gains of over 15% for the full year 2025, rewarding those who bought the dips. In the coming weeks, this suggests using VIX options to protect portfolios during flare-ups, rather than abandoning long-term bullish equity positions. Gold’s move above $4,500 back then was a clear indicator of the market’s underlying anxiety, and its role as a geopolitical hedge has only grown since. It continued that climb through 2025, and with it now consolidating near $4,750, its foundation of support is much higher. Selling short-dated puts on gold could be a way to gain bullish exposure while collecting premium, assuming the metal remains a preferred safe haven. Create your live VT Markets account and start trading now.

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TD Securities said the US dollar could keep rising while global risk premia stay high. It kept a bearish view for 2026, but said the dollar can stay supported in the near term by safe-haven demand. The bank said an “off-ramp” to the war in coming weeks could reduce the safe-haven premium and weaken the dollar. It also pointed to fading US growth exceptionalism and a possible rise in the “Hedge America” trade as further headwinds. It said FX volatility may rise once growth worries dominate. It added that central bank hawkishness may give temporary support, but a wider risk-off move across equities, positioning and rates could keep the dollar bid. It described risk-off drivers such as positioning unwinds, equity drawdowns and terms-of-trade shocks as factors that can lift the dollar and pressure high-beta G10 and emerging market currencies. It also said the dollar looks rich versus most currencies in its HFFV model and has not weakened in line with recent relative rates pricing. It said its aggregate portfolio shifted to a negative trading weight in the dollar after a positioning clean-out and less cheap technical valuations. We see the US dollar staying firm in the near term as long as this global risk premium remains high. Recent geopolitical jitters and last week’s weak European PMI data, which came in at 48.5, are keeping investors in safe-haven assets. Our underlying bearish view for the dollar later in 2026 holds, but for now, safety is the primary driver. Expect currency volatility to increase as worries about global growth take center stage. This means we should consider buying options, as the VIX index has already climbed above 19 in recent sessions. High-beta currencies, like the Australian Dollar and emerging market pairs, will likely face the most pressure in this environment. We are seeing a significant premium priced into the dollar that fundamentals don’t justify, a situation reminiscent of what we observed through parts of 2025. Even as US interest rate expectations have softened relative to Europe’s, with the market now pricing only one more Fed hike this year, the dollar has failed to weaken accordingly. This shows the safe-haven flow is overpowering traditional rate drivers for now. Given the crowded positioning and stretched valuations, we have adjusted our own portfolio to a negative trading weight on the dollar. The easy gains from being long USD appear to be over, and we are now looking for tactical opportunities to fade dollar strength. This could involve selling USD call options or structuring trades that benefit if the risk premium suddenly unwinds.

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UK headline CPI rose 3.0% year on year in February, unchanged from January, according to the ONS. This matched the market forecast and stayed above the Bank of England’s 2.0% target. Core CPI rose 3.2% year on year, up from 3.1% in January and above the 3.1% forecast. Monthly CPI was 0.4% in February versus -0.5% in January, in line with consensus. After the release, GBP/USD was down 0.14% on the day at 1.3390. Earlier, the ONS was due to publish the data at 07:00 GMT. Before the release, forecasts expected headline CPI at 3.0% year on year and 0.4% month on month. Core CPI was expected at 3.1% year on year and 0.5% month on month, after -0.6% previously. The BoE’s MPC voted 9-0 to keep the bank rate at 3.75% after a 25 basis point cut in December. The BoE projected CPI near 3% in Q2 and 3.5% in Q3, while implied rates suggested a little more than 67 basis points of tightening this year. GBP/USD reference levels cited were 1.3200, 1.3010, 1.3495, 1.3574 and 1.3868. Technical readings referenced RSI below 47 and ADX near 30. We remember this time last year when stubborn 3.0% inflation was the main concern, keeping the Bank of England on a hawkish footing. The landscape has now shifted dramatically, with the latest headline CPI print for February 2026 coming in at just 2.1% year-over-year. This confirms the disinflationary trend we have been tracking for months and brings inflation much closer to the Bank’s target. This shift completely changes the outlook for interest rates, contrasting with the rate hike expectations of early 2025 when the Bank Rate was 3.75%. With the Bank Rate now cut to 3.00% and recent GDP data showing a slight contraction, the market is pricing in at least one more rate cut this year. This suggests traders should consider positioning for a continued dovish stance through interest rate swaps or by buying Sterling Overnight Index Average (SONIA) futures. Consequently, the Pound Sterling is under pressure, trading near 1.2850 in contrast to the 1.3390 level seen around this time last year. The dovish pivot from the Bank of England makes the pound less attractive, especially as other central banks maintain higher rates for longer. For the coming weeks, strategies like buying GBP/USD put options or selling call spreads could be used to hedge against or profit from further downside potential. While the downward direction for rates seems clear, the timing of the next Bank of England move creates uncertainty which could lead to short-term volatility spikes. We saw implied volatility on sterling options rise ahead of the last Monetary Policy Committee meeting, a trend that is likely to continue into April. Traders could look at buying straddles on GBP pairs ahead of the next rate decision to capitalize on any sharp market moves.

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The UK Producer Price Index (output), month on month and not seasonally adjusted, was reported for February. The figure came in at -0.5% compared with a forecast of 0.2%.

Implications For Inflation Outlook

The February producer price data shows a significant drop, with factory gate prices falling 0.5% instead of the expected 0.2% rise. This suggests that inflationary pressures within the UK economy are easing much faster than anyone anticipated. It is a strong leading indicator that the pipeline for consumer price inflation is weakening considerably. This unexpected fall will likely force the Bank of England to reconsider its current stance on holding interest rates at 3.5%. With the last official CPI reading in January already showing a dip to 2.8%, this new data strengthens the case for a more dovish policy shift. We believe the probability of an interest rate cut at the May Monetary Policy Committee meeting has now increased substantially. For currency traders, this outlook suggests notable weakness for the British Pound. We expect GBP/USD, which has been hovering around 1.24, to come under pressure as interest rate differentials shift in favour of the dollar. Derivative strategies could involve buying put options on sterling or selling GBP futures contracts. In the interest rate markets, we anticipate a rally in UK government bonds (gilts) as yields fall to reflect lower rate forecasts. This makes going long on three-month SONIA futures an attractive trade, as their prices rise when rate expectations fall. This setup is similar to what we observed in late 2024, when weak manufacturing data preceded a sharp rally in short-term interest rate futures. Conversely, the prospect of earlier rate cuts could be bullish for UK equities, particularly those sensitive to the domestic economy. Lower borrowing costs improve corporate profit margins and support higher valuations. Traders could look at buying call options on the FTSE 250 index to position for a potential stock market rally in the coming weeks.

Equity Market Positioning

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