The Canadian Dollar rose against most major currencies, but edged down near 1.3735 versus the US Dollar during European trading on Monday. The move came as oil prices climbed amid rising conflict in the Middle East. WTI crude was up 2.7% at about $100.15, while Brent crude gained 1.4% to around $109.75. Higher oil prices can support the Canadian Dollar, as Canada is the world’s largest oil exporter.

Middle East Tensions Lift Oil Prices

Tensions increased after Iran said it would respond if US or Israeli forces strike Iran’s power plants. US President Donald Trump said over the weekend he would destroy Tehran’s power plants if Iran does not open the Strait of Hormuz within 48 hours. In Canada, the Bank of Canada is seen as less likely to cut interest rates soon, with higher oil prices affecting inflation expectations. In the US, the Dollar strengthened on safe-haven demand, with the US Dollar Index up 0.4% near 99.90. Market attention is also on preliminary US S&P Global PMI data for March, due on Tuesday. A familiar dynamic is unfolding as rising oil prices are supporting the Canadian dollar. WTI crude is currently trading around $85 a barrel, a significant jump from last month’s $78 level, fueled by recent maritime tensions in the South China Sea. This commodity strength is a key factor for our outlook on the CAD.

Trading Approaches For A Volatile Usd Cad

However, we see the US dollar also attracting bids as a safe-haven asset amid the uncertainty, keeping USD/CAD elevated near 1.3550. This creates a challenging tug-of-war for the currency pair. The Bank of Canada seems hesitant to cut rates with energy-driven inflation risks, while the market is pricing in a potential Federal Reserve cut by June. We are reminded of a similar situation in 2025 when Middle East conflicts pushed WTI oil above $100 a barrel. Even with that surge, the US dollar’s safe-haven status was so strong that it pushed USD/CAD up toward 1.3735. That episode demonstrates that a flight to safety can temporarily overpower strong commodity fundamentals for the Canadian dollar. In this environment, outright directional bets on USD/CAD are risky in the coming weeks. Implied volatility has increased, with the VIX now sitting around 19, making options strategies more compelling. We believe traders should consider strategies that benefit from this heightened volatility, such as long straddles or strangles, to capture a significant price move in either direction. For those with a conviction that either the safe-haven demand or oil strength will ultimately dominate, using debit spreads is a prudent approach. Buying a bull call spread or a bear put spread allows a trader to express a directional view while defining their maximum risk upfront. This is a more capital-efficient way to trade than holding the underlying spot position through this volatile period. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

The US Dollar Index (DXY) rose for a second session and traded near 99.80 in early European hours on Monday. It measures the US Dollar against six major currencies. The US Dollar strengthened on safe-haven demand as tensions in the Middle East increased. Reports said US President Donald Trump gave Iran a 48-hour deadline to reopen the Strait of Hormuz or face possible strikes on energy infrastructure.

Middle East Tensions Drive Safe Haven Demand

Other reports said Washington is considering a ground operation to take control of Iran’s Kharg Island, a key oil export hub. Iran’s Islamic Revolutionary Guard Corps warned it would close the strait if the US acts, while Tehran said it could target US and Israeli assets, including energy, IT, and desalination sites. The US Dollar also gained support from higher oil prices, which have increased inflation concerns. This has reinforced expectations of a hawkish Federal Reserve stance, with markets pricing in a possible rate rise toward year-end. In March, the Federal Reserve voted 11–1 to keep rates at 3.50%–3.75%. Futures markets put the chance of no change at the April meeting at 85.5%, based on the CME FedWatch tool. Looking back to this time in 2025, we remember the US Dollar Index pushing towards 100 on the back of serious tensions in the Middle East. The market was pricing in a significant conflict premium as threats flew over the Strait of Hormuz. That safe-haven bid was the dominant story, driving short-term currency moves.

Positioning For Volatility And Policy Risk

Those specific geopolitical tensions eventually de-escalated, but the dollar has remained strong for different reasons, with the DXY now sitting higher at 104.15. The focus has shifted from immediate conflict to the persistent stickiness of global inflation and interest rate differentials. Therefore, while we remain watchful of the Middle East, the primary drivers for our positions have changed. Volatility is where we should be looking now, as the CBOE Volatility Index (VIX) is hovering around a watchful 18.5. This isn’t panic, but it’s not calm either, suggesting that buying protection is relatively cheap. We should consider long-dated put options on major equity indices as a hedge against any unexpected shocks, whether geopolitical or economic. Oil markets also remember last year’s scare, with current WTI crude prices holding firm around $81 a barrel. Implied volatility on near-term oil futures options is elevated, telling us the market anticipates potential price spikes on any supply-related news. This makes strategies like call spreads on oil an attractive way to position for upside risk without paying for excessively high premiums. The Federal Reserve’s stance is now the central theme, unlike last year when geopolitics shared the stage. After pausing their cuts in late 2025, they eventually did hike rates once more to the current 3.75%-4.00% range to combat inflation that has proven stubborn, with the latest CPI report showing a 3.4% annual increase. This has dashed hopes for any near-term rate cuts and put the possibility of another hike back on the table. This makes interest rate derivatives the most critical market for us in the coming weeks. With the next FOMC meeting approaching, trading options on Fed funds futures allows us to position directly for the outcome. The market is pricing in a hold, but the hotter-than-expected inflation data means any hawkish language from the Fed could cause a significant repricing we can capitalize on. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Safe-haven demand led market moves as Middle East tensions rose, with few top-tier data releases due on Monday. Market focus stayed on geopolitical updates. Over the weekend, US President Donald Trump said the US would “obliterate” Iran’s power plants if Iran did not open the Strait of Hormuz within 48 hours. Iran said it would retaliate by targeting US-linked energy infrastructure in the Middle East if its power plants were attacked.

Strait Of Hormuz Threats

Iran’s Revolutionary Guards said on Sunday that the Strait of Hormuz would be completely closed if the US carried out threats against Iran’s energy facilities. The statement also said companies with US shares would be completely destroyed. The Jerusalem Post reported early Monday, citing two sources familiar with the matter, that the US is preparing a ground operation to seize Iran’s island of Kharg. Markets continued to react to the risk of wider conflict. Gold, after falling about 10% last week, traded below $4,200, its lowest level since December, down nearly 7% on the day. WTI crude rose more than 2% to near $100. The USD Index rose 0.3% to 99.80, while US stock futures fell 0.6% to 1%. EUR/USD slipped below 1.1550, GBP/USD fell below 1.3300, and USD/JPY hovered near 159.50 after a near 1% rise on Friday.

Positioning And Hedging Strategies

With the Strait of Hormuz directly threatened, we are positioning for a severe oil price shock by purchasing WTI and Brent call options. We recall how prices surged over 30% in early 2022 after the invasion of Ukraine, and a closure of the Strait, which handles over 20 million barrels per day, would be far more severe. This strategy offers significant upside exposure while capping our potential losses. The fear driving investors from stocks suggests we should increase our holdings of put options on the S&P 500. A direct bet on rising market anxiety can also be made by buying calls on the VIX index. We saw the VIX surge above 80 during the 2020 market panic, and current geopolitical tensions could easily trigger a similar spike in volatility. A flight to safety is clearly underway, making long positions on the US Dollar Index a core strategy for the coming weeks. We saw a similar dynamic during the 2008 financial crisis when the DXY rallied over 20% in a few months as global investors sought liquidity. Trading derivatives on currency pairs like EUR/USD and GBP/USD allows us to directly profit from this trend. Gold’s sharp decline, despite the crisis, signals a powerful ‘dash for cash’ as traders liquidate assets to meet margin calls in dollars. We remember a similar sell-off in March 2020, where gold briefly dropped 12% before its safe-haven status reasserted and it rallied to new highs. This creates an opportunity to either follow the short-term weakness with put options or strategically buy calls in anticipation of a sharp reversal. The situation with the Japanese Yen is different, as the threat of government intervention caps the upside for USD/JPY near 160. This creates an ideal scenario for volatility strategies like option straddles or strangles. Such positions will profit from any large price swing, whether it’s a breakout higher or a sharp reversal caused by official action. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

The euro was the second-best performing G10 currency last week, behind the Norwegian krone, despite higher energy prices. The move followed speculation that the European Central Bank could raise rates as soon as April, which pushed euro interest rates higher. This week’s main euro area data includes the flash consumer confidence indicator for March. It is expected to give early information on how sentiment has reacted to the war in Iran and the rise in energy prices.

Euro Rate Hike Expectations

Key scheduled events include March PMI releases for the euro area, the UK and the US on Tuesday. Thursday includes a Norges Bank policy meeting. ECB communications included comments from President Christine Lagarde, framed as balanced. Bundesbank President Joachim Nagel referred to a possible April rate rise if inflation risks increase, while other Governing Council members used more cautious language. We’re seeing the Euro perform surprisingly well, second only to the Norwegian Krone among G10 currencies last week. This is happening even with sustained high energy prices, which normally would weaken the currency. The market is clearly betting on something bigger. That bigger bet is on the European Central Bank hiking interest rates as soon as their April meeting. This speculation has driven up Euro interest rates, supporting the currency’s value. Traders should consider buying short-dated Euro call options to capitalize on this upward momentum while defining their risk.

Key Events And Trade Setup

Recent data supports this hawkish view, with the latest February 2026 flash inflation reading for the Eurozone at a stubborn 2.8%, well above the ECB’s target. With Brent crude oil prices holding firm around $95 a barrel due to the ongoing tensions in Iran, inflationary pressures are not easing. This makes the case for an ECB rate hike much more compelling. The key event this week is tomorrow’s release of the March PMI data for the Euro area. A strong reading will likely be interpreted as the green light for an April rate hike, pushing the Euro higher. Conversely, a weak number could pour cold water on the speculation and see the Euro pull back sharply. The current split we’re hearing from ECB officials feels very similar to the internal debates we witnessed back in 2022, which led to sharp market swings. This uncertainty is increasing implied volatility in Euro currency options. This environment is ideal for strategies that profit from price movement. Don’t forget the Norges Bank meeting this Thursday, as the Krone is leading the pack. Its strength is tied directly to high energy prices, making it a key currency to watch alongside the Euro. This could present parallel or alternative trading opportunities in the coming days. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Turkey’s consumer confidence index fell to 85 in March, down from 85.7 in the previous period. The latest figure shows a decrease of 0.7 points month on month. This small dip in Turkish consumer confidence, from 85.7 to 85, signals that the average person is becoming more pessimistic about their financial future. For us, this is a bearish indicator for the domestic economy. It suggests consumer spending, a key driver of growth, may weaken in the coming weeks. This data point reinforces concerns about Turkey’s persistent inflation, which was last reported at an annual rate of 48.5% for February 2026. Even with the central bank holding interest rates at a high of 50%, this stubborn inflation is clearly eroding household purchasing power. This makes it harder for the economy to grow and puts pressure on Turkish assets. We should consider positions that benefit from a weakening Turkish Lira. The currency is already trading near 40.50 against the U.S. dollar, and this sentiment could push it further. Buying USD/TRY call options with strike prices around 42.00 for the second quarter is a viable strategy to hedge against or profit from this expected depreciation. On the equities front, this is a signal to be cautious about the BIST 100 index. We can use derivatives to express a bearish view, such as buying put options on major Turkish ETFs like TUR. This is particularly relevant as consumer-facing sectors like banking and retail make up a significant portion of the index. Looking back, we saw a similar dip in confidence in late 2025 precede a volatile period for the Lira. That period demonstrated how quickly negative sentiment can impact the currency, even when the central bank is taking orthodox policy steps. This historical precedent suggests we should take this new data seriously as a potential leading indicator for market movement.

Start trading now – Click here to create your real VT Markets account

Rabobank’s Senior Market Strategist Benjamin Picton said the Iran war and threats around the Strait of Hormuz are sustaining risk for oil markets. He said Iranian retaliation could target Gulf energy infrastructure, affecting supply. He said a US decision to step back would not guarantee that Iran would allow the Strait of Hormuz to reopen. He said this could leave Iran controlling flows through Hormuz, with toll payments and possible requirements for cargoes to be priced in Chinese yuan (CNY).

Worst Case Supply Disruption Risks

He said damage to oil and gas infrastructure could push conditions towards worst-case scenarios, where energy and other commodity supplies stay restricted for an open-ended period. He said an immediate reversal in oil prices and broader risk assets is unlikely. He cited late-week measures that allowed Indian LPG cargoes to transit Hormuz, and said Iran indicated a similar arrangement may soon be reached with Japan. He said this may ease pressure in the short term, but limited transit means Asian demand-side curtailment may continue until Hormuz reopens. The ongoing conflict with Iran sustains a significant risk premium in oil markets. With Brent crude futures hovering near $115 a barrel, we see little chance of a quick snapback to the prices seen before the 2025 escalation. The market is pricing in a long-term disruption, not a temporary skirmish. Current satellite tracking shows tanker traffic through the Strait of Hormuz remains down nearly 80% from its daily average in 2024, removing close to 17 million barrels per day from the market. This prolonged throttling of supply means any damage to Gulf energy infrastructure would be catastrophic. We believe the CBOE Crude Oil Volatility Index (OVX), now trading near 65, accurately reflects this heightened risk of a worst-case scenario.

Geopolitical Control And Market Pricing

Any perceived US climbdown is unlikely as it would effectively cede control of the world’s most critical energy chokepoint to Iran. This would be a “Suez moment” for the United States, potentially ending its role as the global hegemon. For derivative traders, this means the underlying geopolitical driver for high prices remains firmly in place. The economic consequences are already clear, with the IMF last week revising its global 2026 growth forecast down by a full percentage point, citing sustained energy price shocks. A scenario where Iran enforces demands for oil payments in Chinese Yuan (CNY) would fundamentally challenge the U.S. dollar’s dominance. This adds another layer of long-term risk and currency volatility that traders must now consider. Iran’s recent allowance of some Indian and Japanese LPG cargoes is a minor conciliatory move, but it does not change the strategic reality. These volumes represent a drop in the ocean compared to the overall halted supply. We saw how Asian industrial production figures for February 2026 already showed a contraction, a direct result of this energy curtailment that will likely continue. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

WTI, the US crude oil benchmark, traded near $99.10 in early European hours on Monday, moving above $99.00 as conflict in the Middle East escalated. Markets are also awaiting the American Petroleum Institute (API) report due on Tuesday. On Saturday, US President Donald Trump said he would “obliterate” Iran’s power plants if the Strait of Hormuz was not fully reopened within 48 hours. Iran said it could close the Strait of Hormuz in response, as the war entered its fourth week.

Oil Markets Watch Middle East Risk

The International Energy Agency (IEA) head, Fatih Birol, said on Monday he was consulting governments in Asia and Europe about releasing stockpiled oil if necessary. On March 11, IEA members agreed to release a record 400 million barrels from strategic stockpiles to address supply disruption. WTI stands for West Texas Intermediate and is one of three major crude types, alongside Brent and Dubai Crude. It is sourced in the United States and distributed via the Cushing hub, and is often described as “light” and “sweet” due to low gravity and sulphur content. WTI prices are driven mainly by supply and demand, global growth, political disruption, sanctions, OPEC decisions, and the US Dollar. Weekly inventory reports from the API and the Energy Information Agency (EIA) can affect prices; the two sets of results are within 1% of each other 75% of the time. We remember this time last year, in 2025, when WTI crude pushed past $99 a barrel due to the escalating conflict with Iran. The threats to the Strait of Hormuz created significant upward pressure, reminding us how quickly geopolitical events can shift the market. That period of extreme volatility is a key reference point for our current strategy.

Strategy Implications For Current Volatility

Today, the situation is different, with WTI trading lower, recently hovering around $81 per barrel as of late last week. Current market focus has shifted from the supply shocks we saw in 2025 to concerns over global demand, particularly with recent economic data from China suggesting a slower recovery. The latest EIA report showed a surprise build in crude inventories of 3.6 million barrels, reinforcing this demand-side weakness. The memory of last year’s price spike means implied volatility on crude options remains elevated, even with the lower spot price. We are seeing traders buying call options as a hedge against any sudden flare-up, which is keeping the cost of upside protection relatively high. This suggests that while the immediate trend may be soft, the market is pricing in a significant risk premium for another supply-side shock. In the coming weeks, a key strategy will be managing this discrepancy between the current bearish sentiment and the priced-in geopolitical risk. Selling cash-secured puts at strike prices well below the current market, perhaps around the $75 level, could be a way to collect premium from the elevated volatility. We must also watch the upcoming OPEC+ meeting, as any hint of extending production cuts could quickly reverse the recent downtrend. We also recall the IEA’s record release of 400 million barrels from strategic reserves last year, which only provided temporary relief. Current U.S. Strategic Petroleum Reserve levels are still rebuilding from that period, sitting at approximately 362 million barrels, which is significantly lower than historical averages before 2022. This diminished buffer means any new supply disruption could have an even more dramatic price impact than what we witnessed in 2025. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

USD/JPY rose 0.22% to about 159.60 in the European session on Monday, as the US Dollar strengthened on demand for safe-haven assets amid the Middle East war. The US Dollar Index (DXY) was up 0.33% near 99.85. Tensions grew as Iran said it would retaliate against the US and Israel if Tehran’s power plants are attacked. Over the weekend, US President Donald Trump said Tehran’s power plants would be destroyed if the Strait of Hormuz is not opened.

Fed Policy Expectations Shift

Markets are pricing in steady US policy, with CME FedWatch showing a 97.3% chance the Fed keeps rates at or above 3.50%–3.75% at the December meeting. That is up from 32.4% a week earlier. The Japanese Yen weakened against the US Dollar, but gained versus major Asian and European currencies due to its safe-haven role. USD/JPY stayed above the rising 20-day EMA near 158.10 after a dip toward 157.70. The 14-day RSI moved above 60, pointing to upward momentum. Resistance is around 160.00 and then 160.50, while support sits at 158.70 and 157.50, with a further level at 156.46. We are seeing the USD/JPY pair once again challenge the critical 160.00 level, a situation reminiscent of what we observed in late 2025. This time, the dollar’s strength is being fueled by renewed geopolitical tensions in the South China Sea, pushing capital toward safe-haven assets. However, unlike last year, the underlying economic fundamentals are starting to diverge significantly.

Changing Underlying Economic Fundamentals

Looking back, the market in 2025 was convinced of the Federal Reserve’s hawkish stance, but the situation has now changed. Recent data released for February 2026 showed US core inflation cooling to 2.5%, while the unemployment rate ticked up to 4.2%, its highest in two years. This has shifted expectations for US interest rate policy considerably. The CME FedWatch tool now indicates a 70% probability of a Fed rate cut by the June 2026 meeting, a stark contrast to the 97% chance of rates holding firm that we saw this time last year. This potential narrowing of the interest rate differential between the US and Japan is a key factor traders must now consider. The dollar’s dominance may not be as secure as it was. On the Japanese side, the landscape has also evolved since the Bank of Japan officially ended its negative interest rate policy in the fourth quarter of 2025. The preliminary results from this month’s “Shunto” wage negotiations are showing average pay increases exceeding 4.5%, putting pressure on the BoJ to consider further policy tightening. This provides a fundamental reason for potential yen strength that was absent previously. For derivative traders, this creates an environment ripe for volatility, suggesting a move away from simple directional bets. Given the risk of a sharp reversal, buying long-dated puts on USD/JPY could serve as a valuable hedge against a turn in central bank policy. Alternatively, straddles or strangles could be used to profit from a significant price move in either direction, which is likely as the pair trades near this sensitive level. We must also remember the Ministry of Finance’s direct intervention in the currency market back in 2024 when the pair first crossed the 160 threshold. The threat of similar official action is extremely high, making short-term options strategies focused on implied volatility more attractive than holding spot positions. The risk of a sudden, intervention-driven 300-pip drop is very real. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

March flash PMIs will be used to judge how the recent oil shock is affecting euro area activity and prices. The focus is on whether prices rise more than growth slows, as this could support the case for earlier ECB rate rises. Brent crude ended last week at about $110 per barrel, below its $128 peak in March 2022 after Russia’s invasion of Ukraine. Spot prices for refined products differ, with jet fuel and diesel now above their 2022 peaks, and jet fuel above by a wide margin.

Comparing The 2022 Inflation Shock

In March 2022, the activity index barely moved, while the prices index rose despite already being very high. The current situation is compared with that episode to assess the balance between growth and inflation pressures. The expectation is for only a limited fall in the activity index this time. Price components of the PMIs will be watched closely to see how strong the price shock is relative to growth. The upcoming flash PMIs this week are the most critical data point for us. We are focused on whether the recent oil shock is hitting prices harder than it is hurting economic activity. A report showing resilient activity but sharply rising price pressures would confirm the ECB’s fears and likely trigger earlier interest rate hikes. With refined products like diesel and jet fuel now trading above their 2022 peaks, inflationary pressures are undeniable. This follows February’s flash Eurozone inflation data which came in hotter than expected at 3.1%, keeping the pressure on the central bank. We expect the PMI activity index to show only a small dip, similar to what we saw back in 2022 from our perspective in 2025, placing all the emphasis on the prices sub-component.

Trading Implications And Positioning

Given this, traders should consider positioning for a more aggressive ECB. This could involve using EURIBOR or €STR futures to bet on higher short-term rates, as the market is now pricing in over a 70% chance of a rate hike by the July meeting. The uncertainty leading into the announcement also makes options strategies attractive. The VSTOXX volatility index has already risen to over 23, reflecting the market’s nervousness ahead of the PMI release. Buying straddles or strangles on the Euro Stoxx 50 index could be an effective way to profit from a large market move, regardless of the direction. A surprisingly strong price index reading would almost certainly strengthen the Euro. Therefore, we are also looking at buying call options on the EUR/USD pair. This provides a way to gain from a potential hawkish surprise that would send the common currency higher. Conversely, European equities may face headwinds from the combination of high inflation and the prospect of tighter monetary policy. This environment suggests a cautious stance on stocks, and buying put options on major European indices could serve as a hedge against a negative market reaction. We are particularly wary of transportation and airline stocks, which are directly exposed to the record-high cost of fuel. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account

Sterling fell against the US Dollar on Monday, with GBP/USD trading around 1.3315 in early Europe after touching about 1.3335 in Asia and near 1.3320 earlier. UK and US preliminary PMI data is due on Tuesday. Middle East fighting lifted Brent crude above $100 per barrel, which supported demand for the US Dollar and added to global inflation pressure. Iranian officials said they would retaliate if US President Donald Trump bombed Iran’s power plants, after Trump said on Saturday he would order strikes if the Strait of Hormuz was not fully open to shipping within 48 hours.

Oil Shock And Dollar Demand

The Bank of England left interest rates unchanged at 3.75% at its March meeting. Policymakers said the conflict could raise inflation in the near term via higher energy costs. Reports also said the US is weighing a ground operation to seize Iran’s Kharg Island. A US official said thousands of Marines and Navy personnel have been deployed to the Middle East. We recall this time in 2025 when the conflict over the Strait of Hormuz sent Brent crude oil prices soaring above $100 per barrel. That surge in energy costs and demand for the safe-haven dollar pushed the GBP/USD pair down below the 1.33 level. Today, with Brent futures trading nearer to $87, the situation is less critical, but the market’s memory of that volatility is shaping current strategies. The stagflation fears from 2025 did materialize to an extent, forcing the Bank of England to raise its base rate to a cycle peak of 5.25% later that year to control the oil-driven price shock. While UK inflation has now cooled to 3.5% according to the latest ONS data, it remains well above the 2% target. This persistent inflation complicates the path for any potential rate cuts from the central bank.

Volatility And Hedging Strategies

We saw 3-month implied volatility for GBP/USD options jump to over 12% during the peak of the Kharg Island crisis in 2025. While volatility has since settled to a more subdued 8%, this shows how quickly the currency pair can react to geopolitical news. Traders should consider the relatively low cost of options to hedge against a sudden return to risk-off sentiment. Given that the GBP/USD exchange rate is now consolidating around 1.25, the strong bearish trend from last year has stalled. The Bank of England’s hesitance to cut rates provides a floor for the pound, limiting significant downside for now. This environment may favor strategies like selling out-of-the-money puts to collect premium, betting that a major collapse is not imminent. Create your live VT Markets account and start trading now.

Start trading now – Click here to create your real VT Markets account