USD/CAD fell as the US Dollar eased on improved risk mood after reports raised expectations of a Middle East ceasefire. The pair traded near 1.3920 during European hours on Monday. A Reuters source said the US and Iran received a proposed framework to end hostilities, with a two-step plan of an immediate ceasefire followed by a wider agreement. Pakistan’s army chief, Field Marshal Asim Munir, was reported to be in ongoing contact with US Vice President JD Vance, special envoy Steve Witkoff, and Iran’s Foreign Minister Abbas Araghchi.

Ceasefire Signals And Shipping Risks

Tehran said it would not reopen the Strait of Hormuz under a temporary ceasefire arrangement. Iranian media also reported plans to impose a toll on tankers leaving the Persian Gulf. The move in USD/CAD may be limited because the Canadian Dollar can weaken when oil prices fall. Crude eased after Bloomberg cited an Axios report saying the US, Iran and regional mediators were discussing terms for a potential 45-day ceasefire, one day after US President Donald Trump threatened to rain “hell” on Tehran if it did not make a deal. Lower oil prices reduced concerns about an energy-driven inflation surge and the chance that the Bank of Canada keeps rates restrictive for longer. We remember looking back in 2025 when talks of a ceasefire in the Middle East caused the US Dollar to soften, pushing USD/CAD down toward 1.3900. At that time, easing crude oil prices put a floor under the pair, as it weakened the Canadian dollar. The market’s primary focus was on the geopolitical risk premium being removed from oil.

Oil And Volatility Shift The Balance

That period of calm allowed the Bank of Canada to eventually lower rates, with the national unemployment rate having since climbed to 6.2% as of last month’s data. However, the dynamics we see today in April 2026 are shifting once again. The ceasefire has proven fragile, and oil prices are no longer a headwind for the loonie. WTI crude has steadily climbed in recent weeks, now trading above $86 per barrel, its highest level this year, on renewed concerns over shipping security in the Persian Gulf. This is providing underlying support for the Canadian dollar that was absent during the events of 2025. This strength in oil is now a dominant factor, unlike last year when de-escalation was the main driver. We are seeing a marked uptick in implied volatility for USD/CAD options, with 30-day volatility rising by nearly 20% over the past month. This suggests the market is pricing in a greater chance of sharp moves than it was in the first quarter of 2026. Traders should therefore anticipate wider trading ranges in the weeks ahead. Given the conflicting pressures, traders could consider buying options to protect against, or profit from, these larger swings. Buying short-term USD/CAD put options offers a way to position for a stronger Canadian dollar driven by firm oil prices. This strategy allows for defined risk if geopolitical tensions flare up again and cause a flight to the safety of the US Dollar. Create your live VT Markets account and start trading now.

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Ongoing tensions linked to Iran are supporting USD strength. A risk-off mood is also boosting demand for the Dollar. US yields remain high, which supports the USD. US 2-year yields are above 3.8% and sit above the effective fed funds rate.

Dollar Strength And Risk Off Positioning

Market pricing no longer includes US rate cuts this year. US labour data remains resilient, reinforcing the case for higher yields. Energy supply risks are focused on the Strait of Hormuz. Extended disruption there could keep oil prices elevated, with risks tilted to further rises. Asia is seen as more exposed to any disruption in energy flows. This setup can push markets towards a stronger USD during periods of risk aversion. Given the persistent geopolitical risks, we are seeing the US dollar maintain its strength. With the latest March jobs report showing a resilient addition of over 250,000 payrolls, the fundamental case for a strong dollar is clear. Traders should consider long positions on the dollar, potentially through call options on the USD index (DXY) to capitalize on this upward momentum.

Options Positioning For Volatility And Rates

The situation in the Strait of Hormuz continues to place a floor under oil prices, with Brent crude recently trading above $95 a barrel. This environment suggests that upside risks to energy prices remain firmly in play. Consequently, looking at call options on WTI or Brent futures, or on broad energy sector ETFs, could be a prudent way to gain exposure to further price increases. Elevated US yields are a core part of this outlook, with the 2-year Treasury note holding firm around 3.95%. This is a significant shift from late 2025, when we saw many in the market positioning for rate cuts in the first half of this year. With futures markets now pricing in less than a 10% chance of a rate cut in 2026, instruments tied to interest rates, like options on Treasury futures, may offer opportunities to bet on yields remaining high. This risk-off sentiment, driven by high energy prices and a strong dollar, is particularly challenging for Asian economies that are heavily reliant on energy imports. This dynamic supports a weaker outlook for regional currencies against the dollar. Traders might explore put options on currency pairs like the Japanese Yen or on Asian market index funds to hedge against or profit from regional underperformance. The combination of geopolitical tension and uncertainty around central bank policy is likely to keep market volatility elevated. The VIX has been climbing, reflecting increased market anxiety. In such a choppy environment, buying options can be more advantageous than trading futures, as it provides a defined-risk strategy to navigate potential sharp market swings. Create your live VT Markets account and start trading now.

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USD/JPY edged down to around 159.40 on Monday, with low volumes as many markets were shut for Easter Monday. It touched 159.35 in early Europe after reports that the US and Iran received a framework plan from mediators to end hostilities. Risk tone improved as worries eased over a warning that civil infrastructure and energy sites could be targeted if the Strait of Hormuz was not reopened by Tuesday at 8 PM Eastern Time. This reduced demand for the US Dollar and led to a trimming of long US Dollar positions.

Oil Prices And Yen Pressure

Moves in the pair were limited as the conflict in Iran and higher oil prices continued to weigh on the Japanese Yen. Japan is a major crude importer, and the current oil price level adds pressure to growth and fiscal conditions. The Yen has fallen nearly 5% since late February and reached 160.00 last week. Japan’s Finance Minister, Satsuki Katayama, said on Friday that currency moves were “very speculative” and that Tokyo is ready to take all possible steps to curb Yen weakness. US data on Friday showed Nonfarm Payrolls rose by 178K in March versus 60K expected. Net employment was described as little changed from March 2025, with concern that a longer Iran war could hurt jobs. Looking back at the situation in early April 2025, we recall the extreme tension as USD/JPY approached the 160.00 level. The potential for a peace deal in Iran offered temporary relief for the yen, but the underlying pressure from high oil prices and interest rate differentials was the dominant theme. This period marked a significant turning point, where the threat of currency intervention became a primary market driver.

Market Conditions And Strategy

Following the events of last year, Japanese authorities did step into the market, which, combined with an eventual de-escalation in the Middle East, brought the pair down from its highs. We’ve seen oil prices stabilize, with WTI crude now trading around $86 per barrel, a significant drop from the highs seen during the 2025 conflict. This has eased some of the structural pressure on the yen, but the core issue of interest rate divergence remains firmly in place. With USD/JPY currently trading near 151.75, the wide interest rate gap between the US Federal Reserve and the Bank of Japan continues to favor dollar strength. Given this, we see opportunities in selling out-of-the-money JPY call options to collect premium, betting that the memory of last year’s intervention will cap any significant rallies. This strategy benefits from the high “carry” earned from being long USD and short JPY. Implied volatility for USD/JPY has fallen considerably over the last year, with one-month volatility now hovering near 8%, compared to the double-digit levels we saw during the 2025 intervention scare. This suggests the market is complacent and makes buying volatility through options, like straddles, an attractive proposition. A surprise move from either the Fed or the Bank of Japan could spark a sharp move that is not currently priced in. Recent data shows non-commercial speculators on the Chicago Mercantile Exchange hold a near-record net short position on the yen, exceeding 140,000 contracts. Historically, such extreme positioning has often preceded sharp reversals, creating a risk of a sudden “short squeeze” that could strengthen the yen rapidly. This vulnerability suggests that holding long JPY positions through call options could provide a low-cost, high-reward hedge against a sudden shift in market sentiment. Create your live VT Markets account and start trading now.

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Geopolitical tensions linked to Iran are supporting the US dollar, alongside higher US yields, firm US labour data and reduced expectations for Federal Reserve rate cuts. The dollar is also benefiting in risk-off market conditions. US 2-year yields are above 3.8% and sit above the effective federal funds rate. Markets are no longer pricing any rate cuts this year, which supports the dollar’s carry advantage.

Energy Flow Risk Through Strait Of Hormuz

Potential disruption to energy flows through the Strait of Hormuz is a key risk, with greater exposure for Asian economies. Oil prices are expected to stay elevated, with risks tilted towards further gains. The article states it was produced using an AI tool and reviewed by an editor. Given the ongoing geopolitical risks and supportive US economic data, the environment continues to favor a stronger US dollar. Last week’s incident involving a tanker near the Strait of Hormuz has kept markets on edge, pushing investors toward safety. We see this trend persisting, making long dollar positions the primary strategy for the coming weeks. The Federal Reserve’s position solidifies this view, as last Friday’s March Non-Farm Payrolls report showed a robust addition of 245,000 jobs. This strong labor market, combined with the 2-year Treasury yield holding firm above 3.85%, gives the Fed no reason to consider cutting rates. Consequently, the dollar’s appeal from a yield perspective, known as carry, remains very high.

Higher For Longer Supports Dollar Carry

We recall how markets in late 2024 and through 2025 consistently tried to price in Fed rate cuts, only to be proven wrong by stubborn inflation and a resilient economy. This experience should guide our current thinking, reinforcing the credibility of the “higher-for-longer” rate narrative. Derivative strategies betting on a sudden dovish pivot from the Fed carry significant risk. The tensions are also keeping energy prices elevated, with WTI crude futures now pushing past $92 per barrel. This acts as a drag on major energy-importing regions like Europe and Asia, placing further downward pressure on their currencies relative to the dollar. We should consider options that benefit from continued high oil prices, such as call spreads on major energy ETFs. For direct currency exposure, buying call options on the US Dollar Index (DXY) offers a broad approach to this strong dollar theme. More targeted trades include purchasing puts on the Japanese Yen, which is especially vulnerable to widening interest rate differentials with the US. The path of least resistance for the USD/JPY pair appears to be upward in this environment. Create your live VT Markets account and start trading now.

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USD/JPY dipped below 159.40 on Monday, reaching 159.35 in early European trade, as low Easter Monday volumes coincided with broader US Dollar softness. Reports said the US and Iran had received a framework from mediators to end hostilities, which reduced demand for the safe-haven US Dollar. Concern also eased after US President Donald Trump’s threat to destroy civil infrastructure and energy sites unless the Strait of Hormuz reopens by Tuesday at 8 PM Eastern Time. This encouraged a reduction in US Dollar long positions.

Market Conditions And Safe Haven Flows

Moves were limited as the conflict in Iran and higher oil prices continued to weigh on Japan, a major crude importer. The Yen has fallen nearly 5% since late February and approached 160.00 last week, a level linked to possible official action. Japan’s Finance Minister, Satsuki Katayama, said on Friday that currency moves looked “very speculative” and that Tokyo is ready to take all possible steps. In the US, Nonfarm Payrolls rose 178K in March versus 60K expected, though net employment was described as little changed from March 2025, and war risks were cited as a downside factor. We can see how this situation from early 2025 set the stage for the market we are in today. Back then, the threat of intervention by Japanese authorities at the 160.00 level was just talk, but the geopolitical risk from Iran was a major focus. The market was weighing verbal threats against real-world conflict and high oil prices, creating significant uncertainty. Looking back, we know that those verbal warnings became reality a few weeks later in May 2025. Japanese authorities stepped in forcefully after the pair breached 161.00, spending a record of over ¥9 trillion to strengthen the yen. This action pushed USD/JPY back down toward 153.00, establishing a clear line that officials are willing to defend.

Rate Differentials And Intervention Risk

Today, the fundamental picture pushing the pair higher is even stronger than it was last year. The Bank of Japan has only managed one small rate hike to 0.25%, while persistent inflation in the US has kept the Federal Reserve’s rate at 4.75%. This massive interest rate differential continues to encourage carry trades that sell the yen and buy the dollar. The geopolitical risks that supported the dollar back in 2025 have thankfully receded. The de-escalation in the Strait of Hormuz has allowed WTI crude oil prices to fall from over $100 a barrel to a more stable range in the low $80s. This removes a key headwind for the yen, but it is not enough to overcome the powerful influence of interest rates. With the pair now creeping back up towards 158.00, we should not bet against another intervention. The 2025 playbook shows officials will act, making outright long positions in USD/JPY increasingly risky as we approach the 160.00-161.00 zone. Derivative traders should consider buying puts or establishing bear call spreads to profit from a potential sharp rejection at these levels. This strategy allows us to capitalize on the inevitable spike in implied volatility that will occur as the pair nears the ministry’s red line. Selling call options with strikes above 160.50 could be an effective way to collect premium from traders betting on a breakout that history tells us is unlikely to be sustained. It’s a trade that benefits from both the intervention threat and the market’s memory of last year’s sharp reversal. Create your live VT Markets account and start trading now.

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The Indian Rupee fell after opening flat against the US Dollar at the start of the Reserve Bank of India policy week. USD/INR rose to about 92.85, with firmer oil prices weighing on the Rupee. WTI traded near $102 during afternoon hours in India after renewed threats against Iranian infrastructure were reported. Higher oil prices tend to pressure currencies in economies such as India that import large amounts of energy. Foreign fund outflows from Indian equities continued to add pressure. In the first two trading days of April, Foreign Institutional Investors sold Rs. 18,262.28 crore, and they were net sellers on all trading days in March. Attention this week is on the RBI policy decision on Wednesday, with expectations for rates to stay unchanged. Markets are also watching US ISM Services PMI for March at 14:00 GMT, forecast at 55.0 versus 56.1 in February. In technical terms, USD/INR resistance is near the 20-day EMA around 93.00, then 93.66, with an all-time high at 95.22 above. Support is seen at 92.35, then 91.35, while the 14-day RSI moved into the 40.00–60.00 zone. Given the high oil prices and continued foreign outflows, we should anticipate further weakness in the Indian Rupee. The fundamental picture supports a rising USD/INR, so positioning for this trend is the primary strategy. Derivative traders should consider buying USD/INR futures or call options to capitalize on the upward momentum toward the 93.00 and 93.66 resistance levels. The surge in WTI crude to $102 a barrel is a major threat to the Rupee, as it inflates India’s import bill. Historically, we have seen oil prices cross the $100 mark during significant geopolitical events, like the conflict in Ukraine in 2022, which immediately widened India’s current account deficit. This situation makes a compelling case for a weaker Rupee in the weeks ahead. The consistent selling by Foreign Institutional Investors, with over Rs. 18,200 crore pulled out in early April, is putting direct pressure on the currency. Looking back from our viewpoint in 2025, we recall how periods of sustained outflows, like the one seen in January 2024 when FPIs sold over $3 billion in equities, consistently led to Rupee depreciation. This pattern appears to be repeating, reinforcing the bearish outlook for the INR. This week’s RBI monetary policy announcement on Wednesday is a key event that will likely inject volatility into the market. With inflation concerns rising, any hawkish commentary from the central bank could cause sharp, unpredictable moves. We should consider strategies like long straddles to profit from a potential spike in volatility, regardless of the direction. For traders looking at specific entry points, a decisive break above the 20-day EMA near 93.00 would be a strong signal to add to long positions. A move past the 93.66 high would confirm the bullish trend is reasserting itself, opening the path toward the all-time high. The immediate support to watch is 92.35, but the overall pressure remains on the upside for the dollar. Importers with future US dollar payments should see the current environment as a critical time to hedge their currency risk. Buying USD/INR forward contracts or call options can lock in a rate and protect profit margins from further Rupee depreciation. The cost of not hedging in such a volatile, high-oil-price environment could be significant.

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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. 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. 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.

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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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