Geopolitical Risk Drives Yen Demand
ECB Governing Council member Peter Kazimir said a rate hike may be nearer than previously thought, and the bank could act if the war lifts inflation expectations. Markets have raised expectations for ECB rate rises after these comments, with swaps implying faster tightening than earlier. LSEG data shows the ECB is now seen hiking as soon as June. On the chart, EUR/JPY remains above the rising 100-day EMA near 181.40, with the RSI at 51. Support is seen around 183.10, then 182.10 and 181.40. Resistance is near 184.90, then around 185.70. The intense new conflict in the Gulf is driving money into the safe-haven Japanese Yen, pushing the EUR/JPY pair down. We are seeing a classic geopolitical reaction as traders seek safety from the missile attacks on Israel. This creates a direct headwind for the cross, despite other factors at play.Options Strategies For Rising Volatility
We remember from the initial weeks of major conflicts, like the one that began in 2022, the CBOE Volatility Index (VIX) surged above 35, indicating extreme market fear. Current volatility gauges are also rising, with the VIX climbing 12% in the last 24 hours to 19.5, suggesting traders should prepare for wider price swings. This environment is ripe for option strategies that profit from increased volatility, such as straddles. At the same time, the European Central Bank is signaling rate hikes to combat inflation, which could strengthen the Euro. Recent data shows Eurozone inflation unexpectedly rose to 2.8% last month, giving weight to policymakers’ hawkish comments. Markets are now pricing in a 75% chance of a 25-basis-point hike by the June meeting, creating a powerful upward force on the Euro. For derivative traders, this means volatility is the main opportunity. Buying options can be more attractive than trading the spot price directly due to the uncertain direction. A long strangle, buying a put option with a strike near the 182.10 support and a call option with a strike near the 185.70 resistance, could profit if the pair breaks out of its current range. Alternatively, those holding long positions should consider hedging their downside risk. Buying put options with a strike price below the key 181.40 support level offers a form of insurance against a significant escalation in the conflict. This level is critical because a sustained break below it would invalidate the current bullish structure we have been tracking. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
