USD/JPY rose for a third day on Thursday and traded near 159.18. This returns the pair to levels linked to official Japanese “rate checks” on 23 January, raising talk of possible intervention. The Yen stayed weak due to a wide interest-rate gap between Japan and other major economies. Markets also focused on Japan’s fiscal stance and the country’s already high public debt.

Intervention Risk Returns

Demand for the US Dollar increased amid the US-Iran conflict. Oil flows through the Strait of Hormuz have been severely disrupted, affecting a key route for global crude exports. Japan, a large net energy importer with much supply from the Middle East, faces higher import costs. This could hurt growth and the trade balance and add pressure on the Yen. The Bank of Japan has continued a cautious approach to policy tightening. Governor Kazuo Ueda said on Thursday the BoJ will set policy while closely assessing how foreign-exchange moves affect its forecasts. Markets expect a BoJ rate rise in April, but the timing remains uncertain. At the same time, expectations for US rate cuts have dropped to less than 25 basis points by year-end, from more than 50 basis points before the Middle East conflict, supporting the Dollar via higher US Treasury yields. US data due on Friday include the PCE Price Index, preliminary Q4 annualised GDP, Durable Goods Orders, and the University of Michigan sentiment and expectations index.

Traders Weigh Policy And Volatility

Looking back at the situation in early 2025, we saw USD/JPY push past 159, triggering serious concern from Japanese officials. Now, in March 2026, the pair is again approaching that critical level, trading near 158.50, which brings the potential for intervention back into sharp focus for traders. This creates a familiar but tense environment for currency markets. We remember that following the warnings in January 2025, the Ministry of Finance did eventually step into the market in the spring of that year. Records show they spent nearly ¥7 trillion to support the yen, causing a rapid, multi-yen drop in the pair over just a few days. This history suggests that while officials may issue verbal warnings first, their tolerance has a clear and costly limit. The fundamental issue of the interest rate gap, a major driver of yen weakness in 2025, persists today. Although the Bank of Japan has since raised its policy rate to 0.25%, the U.S. Federal Reserve has only cautiously cut its own rate to 4.75%, leaving a substantial differential that encourages carry trades. This underlying pressure makes sustained yen strength difficult to achieve without official action. The energy shock from the US-Iran conflict in 2025 also left a lasting mark on the market. While the severe disruptions at the Strait of Hormuz have eased, global oil prices have established a higher floor, with WTI crude now consistently trading around $85 per barrel, up from pre-conflict levels. This continues to weigh on Japan’s trade balance and contributes to the yen’s structural weakness. Given the current proximity to the 2025 intervention zone, derivative traders should consider strategies that protect against a sudden, sharp decline in USD/JPY. Buying put options with a one- or two-month expiry provides a direct hedge against a surprise move by Japanese authorities. The cost of this insurance is a necessary consideration when the risk of a 3-5% drop in the pair is elevated. At the same time, the interest rate differential continues to favor holding U.S. dollars over yen, suggesting the path of least resistance remains upward. A cautious bullish strategy could involve using call spreads, which cap both potential profits and losses. This allows traders to benefit from a continued grind higher in USD/JPY while defining their maximum risk should intervention occur. Create your live VT Markets account and start trading now.

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

Canada’s merchandise trade deficit widened in January to its largest level in five months. The rise was linked mainly to temporary disruption in the automotive sector. The disruption led to the largest decline in nominal exports since April 2025. Automotive exports and related imports both fell, as the United States is the main destination for these exports.

Trade Balance Shift Driven By Autos

The reduction in the trade surplus with the United States was partly offset by a 23.7% increase in natural gas exports. This followed an unusually cold January in the United States, which raised demand and prices. Imports also dropped outside autos, with a fall in electronics. Statistics Canada linked this to fewer smartphone imports from China during a semiconductor shortage. The wide trade deficit reported for January 2026 is now old news, and we should focus on its temporary nature. The disruption in the auto sector, which we now understand was linked to specific plant retooling for new EV models, is already resolving. This suggests the sharpest part of the export decline is behind us. Given this, we see an opportunity in call options on the Canadian dollar for the coming weeks. The currency weakened following the January report, but recent industry data for February 2026 shows North American auto production has already rebounded by over 10% from its January lows. As the market digests that the automotive weakness was a one-off event, the CAD should regain its footing against the USD.

Positioning For A Near Term Rebound

For equity traders, this points toward buying call options on Canadian auto-parts manufacturers that were oversold. The implied volatility on these names spiked in February, but as production schedules normalize, their earnings outlook for the rest of the first half of 2026 will improve. The temporary shutdown likely created an attractive entry point for bullish positions expiring in the second quarter. Conversely, the boost from natural gas exports was clearly tied to a temporary weather event. As we move into the spring shoulder season, demand will naturally fall, and recent U.S. Energy Information Administration data shows natural gas storage levels are now 4% above the five-year average. This makes put options on Canadian natural gas producers a sensible hedge against a price correction. The Bank of Canada will likely look past this noisy January data, especially as the latest inflation report for February showed core CPI holding steady at 2.5%. The persistent issue is the semiconductor shortage mentioned in the report, a problem we also saw impact supply chains in 2025. This lingering supply-side headwind may keep the Bank from turning more aggressive, supporting trades that benefit from interest rates remaining stable through the spring. Create your live VT Markets account and start trading now.

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

HSBC keeps bonds as a core holding and focuses on steady income. It says inflation is largely contained across most developed markets and expects the effect of the oil price spike to be short-lived. The bank says central banks are almost finished with rate-cut cycles. It favours medium-to-long duration in euro and sterling bonds, while keeping medium duration in US dollar bonds.

Developed Market Bond Preferences

Among developed market government bonds, it prefers UK gilts and Australian government bonds. It also considers emerging market local currency sovereign bonds, citing lower correlation to risk assets. In credit, it prefers investment grade and emerging market bonds over high yield. It notes that high yield credit spreads remain tight and looks for value in emerging markets with solid fundamentals and yields from higher-quality issuers. It says a recent US Supreme Court ruling on US trade tariffs should have little effect on bond yields. It adds that the high US fiscal deficit may limit how far yields can fall, and it sees better prospects in the UK and some emerging markets. We believe that stable income is now the primary goal, as the major central bank rate-cutting cycles that dominated 2025 are largely complete. With inflation mostly under control, the focus shifts to finding the best relative value across different government bond markets. This environment suggests positioning for specific interest rate moves rather than broad market shifts.

Strategy Implications For Duration

Given this outlook, we see better prospects in UK gilts compared to US Treasuries. The latest UK inflation data for February 2026 came in at 2.1%, while Q4 2025 GDP growth was a sluggish 0.1%, giving the Bank of England reason to remain accommodative. This supports taking on long-duration positions in the UK, likely through buying Long Gilt futures. In the United States, the potential for yields to fall is limited by the high fiscal deficit, which the Congressional Budget Office recently projected to remain above 5.5% of GDP. Therefore, our strategy involves maintaining a more cautious medium duration in US Treasuries. This might involve using 10-year Treasury note futures to capture modest price movements without over-exposing to longer-term interest rate risk. On the credit side, we prefer the safety of investment-grade bonds over high-yield debt. The spread on the US Corporate High Yield Index tightened to just 310 basis points last month, a level not seen since mid-2025, offering poor compensation for default risk. A strategic response could involve buying credit default swap (CDS) protection on high-yield indices. We also find value in Australian government bonds and select emerging markets offering solid fundamentals. For instance, with inflation in Mexico now trending down towards 4%, its high policy rate offers attractive real yields and a diversification benefit. These positions can be expressed through bond futures or currency derivatives that benefit from stable or appreciating local currencies. Create your live VT Markets account and start trading now.

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

The United States held a 4-week Treasury bill auction with an unchanged high rate of 3.64%. The result indicates the auction’s yield level remained the same as the previous comparable reading.

Near Term Rate Expectations

The unchanged 4-week bill auction at 3.64% indicates that near-term rate expectations are anchored and stable. We see this as a signal that the market does not expect any sudden moves from the Federal Reserve in the immediate future. This environment makes selling volatility an attractive strategy for the coming weeks. This outlook is supported by recent economic data, with last week’s jobs report showing steady payroll growth of 195,000, aligning with a non-inflationary expansion. This predictability makes strategies like selling iron condors on major indices like the SPX appealing, as they profit from a lack of large price swings. The CBOE Volatility Index (VIX) has reflected this, hovering near 14 for the past month, well below its historical average. We remember the sharp market reactions to Fed announcements throughout 2025, when rate path uncertainty was extremely high. The current stability is a stark contrast, suggesting that long volatility positions are less likely to be profitable now. This favors option-selling strategies that collect premium from the market’s expectation of calm. This steady rate environment also continues to support the U.S. dollar. With the European Central Bank signaling a potential rate cut in the next quarter, the interest rate differential favors holding dollars. We could see traders using options on currency pairs like the EUR/USD to position for further dollar strength.

Focus On The Next Dot Plot

Looking forward, attention will be on the Fed’s next dot plot for guidance on the remainder of the year. The current stability allows traders to focus on longer-dated options on SOFR futures, where expectations for late-2026 rate cuts are still priced in. A position that bets on the Fed holding steady for longer than anticipated could be a valuable hedge. Create your live VT Markets account and start trading now.

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

The Canadian Dollar eased against the US Dollar on Thursday, with USD/CAD near 1.3621 after earlier dropping to about 1.3525. Demand for the US Dollar remained firm amid the US-Iran war. Oil prices stayed elevated due to supply disruption risks in the Strait of Hormuz, which can support the CAD because Canada exports crude. Iran’s Supreme Leader, Mojtaba Khamenei, said the strait’s closure should remain a tool to pressure Iran’s enemies. The US Dollar continued to gain, supported by demand for liquidity during geopolitical stress. As oil is priced in US Dollars, buyers often need more USD for energy purchases. The US Dollar Index (DXY) traded around 99.70, near its highest level since November 2025. Markets also focused on the risk that higher oil prices could raise inflation and keep interest rates higher for longer. Expectations for Federal Reserve rate cuts have been reduced, with markets no longer fully pricing even one 25-basis-point cut in 2026. The Bank of Canada is expected to keep rates on hold through 2026. US Initial Jobless Claims for the week ending March 7 fell to 213K from 214K, below the 215K forecast. Housing Starts rose to 1.487 million versus 1.35 million expected. US data due Friday includes the PCE Price Index, preliminary Q4 annualised GDP, Durable Goods Orders, and University of Michigan sentiment indices. Canada is due to release labour market data. Given the heightened demand for the US Dollar as a safe haven during the US-Iran conflict, we should position for continued strength in the USD/CAD pair. The path of least resistance appears to be higher, so acquiring call options or long futures contracts on USD/CAD seems prudent. This strategy directly plays into the ongoing flight to quality that is currently dominating market sentiment. The rally in crude oil, with West Texas Intermediate (WTI) now trading above $115 a barrel for the first time since the summer of 2022, is failing to support the loonie as it normally would. We saw a similar dynamic during the initial weeks of the Ukraine conflict in 2022, where the dollar’s safe-haven appeal initially overshadowed the commodity price surge. This historical precedent suggests the greenback will likely remain in control as long as the conflict in the Strait of Hormuz is escalating. With geopolitical uncertainty so high, implied volatility in the currency markets has jumped, making options more expensive. We should consider using strategies like bull call spreads on USD/CAD to cheapen the cost of entry and define our risk. This allows us to maintain a bullish outlook while protecting against a sudden reversal if tensions were to de-escalate unexpectedly. The divergence in central bank policy expectations provides a strong fundamental tailwind for our position. According to fed funds futures, the market has dramatically repriced rate expectations, with the probability of a Fed rate cut by the end of 2026 collapsing from over 80% at the start of the year to below 30% today. Meanwhile, the Bank of Canada is widely expected to remain on hold, increasing the interest rate advantage for the US dollar. A key risk to this view is if oil prices continue to spike uncontrollably, which could force the Bank of Canada to adopt a more hawkish stance to fight inflation. We remember how a temporary supply scare back in 2025 briefly caused the Canadian Dollar to rally before risk aversion took over again. Therefore, we must closely monitor communications from the BoC for any change in tone. All eyes should be on tomorrow’s flood of US economic data, particularly the PCE inflation report. A higher-than-expected inflation reading would solidify the view that the Fed cannot cut rates and would likely propel USD/CAD towards the 1.3700 level. Conversely, a surprisingly soft report could provide a temporary dip and a better entry point for long positions.

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

Markets are watching the Strait of Hormuz and possible outcomes from the Iran conflict. Prediction markets put the chance of a ceasefire at about 30% by March 2026 and 40% by April 2026. Even under a lower-disruption scenario, oil is expected to reset to $70–75 per barrel. This is above an earlier forecast for Brent to average about $65 this year.

Oil Price Scenarios And Market Pricing

If the conflict lasts longer, oil could rise to above $150. Higher oil prices could add to inflation and affect European and UK interest rates. A 10% increase in oil prices is linked to a 0.1–0.2% fall in EU/UK GDP and a 0.3–0.4% rise in inflation over a 12-month period. The current situation is described as a price shock rather than a supply shock. Europe’s energy position has changed through higher LNG imports, increased storage, and about a 20% drop in gas use. A previous response in 2022 included a fiscal package close to 3% of GDP. Markets appear to be under-pricing the ongoing conflict near the Strait of Hormuz, even as prediction markets only give a 40% chance of a ceasefire by April 2026. Given this, we see the previous forecast of $65 per barrel for Brent crude this year as completely unachievable. The new floor, even in a best-case scenario, looks to be in the $70-75 range. The significant upside risk for oil, potentially pushing prices north of $150 in a prolonged conflict, is not fully reflected in current positioning. Recent EIA data has already shown global crude inventories drawing down for a fifth consecutive week, tightening the market before any major disruption. We believe long-dated call options on Brent and WTI futures offer a compelling way to position for this potential price shock in the coming weeks.

Inflation Rates And Hedging Strategy

This price pressure will translate directly into higher inflation, particularly in Europe and the UK, where a 10% rise in oil can lift inflation by up to 0.4%. The latest flash CPI reading from Eurostat for February 2026 already showed an uptick to 2.8%, suggesting inflationary pressures are re-emerging. This makes inflation swaps an attractive hedge against central banks being forced to react. Looking back to the energy crisis of 2022, we remember how quickly central banks were forced to abandon dovish plans and hike rates aggressively when inflation took hold. While Europe is more resilient to a supply shock than it was then, the European Central Bank and the Bank of England will have little choice but to delay any planned rate cuts if oil prices persist at these new, higher levels. We see value in positioning for a more hawkish stance through interest rate futures. The combination of slowing growth and rising inflation creates a difficult environment for equities. Shipping insurance premiums for tankers passing through the Strait have already spiked by another 15% this past week, a clear sign of real economic friction. We feel it is prudent to consider buying protective put options on major European indices or increasing exposure to volatility in the near term. Create your live VT Markets account and start trading now.

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

AUD/USD fell on Thursday to about 0.7095, down 0.83% on the day. It had reached near 0.7185 on Wednesday, its highest level since June 2022. The drop followed renewed demand for the US Dollar as markets became more cautious. Tensions involving Iran, Israel and US forces increased risk aversion.

Oil Prices And Risk Sentiment

Worries about Oil shipments through the Strait of Hormuz pushed energy prices higher. This lifted inflation concerns, supported US Treasury yields, and aided the US Dollar’s safe-haven demand. US data also supported the US Dollar. Initial Jobless Claims were 213K versus a 215K forecast, and Housing Starts rose to 1.487M, above expectations. In Australia, rate expectations may help the Australian Dollar. Markets have increasingly priced in a 25 basis-point Reserve Bank of Australia hike at the March 17 meeting. TD Securities expects two rate rises by May, which could take the Cash Rate to 4.35%. A different policy path between Australia and the US may limit further AUD/USD declines.

Recent Policy Divergence

Looking back at the analysis from early 2025, we saw a tug-of-war between a strong US dollar and a hawkish Reserve Bank of Australia. The market was correctly pricing in RBA rate hikes, which provided a floor for the Aussie dollar at the time. Today, with AUD/USD trading much lower around 0.6650, the environment has completely flipped. The RBA did indeed hike its cash rate to 4.35% by mid-2025, but the economic landscape has since changed significantly. We have now seen three subsequent rate cuts, bringing the cash rate down to the current 3.60% in an effort to support a slowing economy. Australian quarterly GDP growth has slowed to just 0.2%, reinforcing the market’s expectation that the RBA’s next move is more likely to be another cut than a hike. In contrast, the US Federal Reserve is holding firm, with recent Core PCE inflation proving sticky at 2.8%, well above their target. Last week’s Non-Farm Payrolls report showing the addition of 225,000 jobs has erased any near-term rate cut expectations in the US. This policy divergence now heavily favors the US dollar, a stark reversal from the situation we observed in early 2025. Geopolitical tensions are once again a dominant factor, mirroring the concerns from last year over the Strait of Hormuz. With Brent crude recently climbing back above $85 a barrel and the Cboe Volatility Index (VIX) rising to 17, safe-haven demand for the US dollar is strengthening. This renewed risk-off sentiment is adding significant pressure on risk-sensitive currencies like the Australian dollar. Given this backdrop, traders should consider buying AUD/USD put options to position for further downside. Options with a strike price around 0.6500 for expiry in late April would offer a way to profit from a potential slide driven by policy divergence and risk aversion. This strategy defines our risk to the premium paid while providing exposure to the prevailing bearish momentum. However, we must remain watchful of key commodity prices, which were less of a factor during the risk-off environment in 2025. Iron ore prices have shown resilience, recently pushing above $115 per tonne. A sustained rally in Australia’s key export could provide unexpected support for the Aussie dollar and act as a hedge against our bearish positions. Create your live VT Markets account and start trading now.

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

Brazil and the Brazilian real (BRL) are supporting broader Latin American market performance, linked to commodities and high real interest rates. Reports say premiums for available oil in Brazil have risen to $13 per barrel above current benchmarks. Commodity-exporting economies in the region may avoid a sharp terms-of-trade shock, but high real rates are described as a support for currency stability. This comes as US dollar interest-rate expectations begin to shift.

Brazil Leading Regional Performance

Regional currencies and equities face more downside risk after strong gains earlier in the year, yet overall figures remain firm. This is mainly attributed to resilience in Brazilian assets, with outperformance versus regional peers strengthening since the end of February. Brazil’s central bank, COPOM, is expected to cut rates by 50 basis points to 14.50% at next week’s decision. Even after that, real rates would remain in double digits. The piece also notes that longer-term rates could improve if fiscal discipline continues and excess stimulus is avoided. It adds that other Latin American economies share defensive features, but Brazil may find it hard to keep diverging from neighbours. We recall the perspective from early 2025, when Brazil was considered the anchor for Latin American assets due to strong commodity exports and high real interest rates. That strength was largely built on a Selic interest rate that was well into the double digits. However, the central bank’s expected policy easing cycle was correctly identified as the main risk to that outperformance.

Implications For Derivative Traders

That easing cycle has since played out as forecasted, with COPOM cutting the Selic rate multiple times throughout 2025 and into this year. Brazil’s benchmark rate now stands at 9.00%, a significant drop that has eroded the BRL’s yield advantage. Consequently, the Brazilian Real has depreciated by over 10% against the U.S. dollar since the beginning of 2025, confirming the view that its outperformance was unlikely to be sustained. The divergence from regional peers has indeed reversed, just as we suspected might happen. For instance, while Brazil pursued aggressive easing, Mexico’s central bank has been more cautious, helping the Mexican Peso remain far more resilient against the dollar over the same period. This relative underperformance of Brazilian assets fulfills the warnings we were considering last year. For derivative traders, this means positioning for continued BRL weakness or volatility is a primary strategy. Buying U.S. dollar call options against the Brazilian Real offers a way to profit from further depreciation, while implied volatility on BRL options remains elevated, reflecting ongoing uncertainty about the pace of future rate cuts. This environment suggests hedging any BRL-denominated assets is now more critical than it was in early 2025. The commodity tailwind has also faded from the highs seen in 2025, when oil premiums were reportedly surging. With WTI crude oil prices having stabilized in the low $80s per barrel, the terms-of-trade boost for Brazil is less pronounced. This removes a key pillar of support that once propped up the currency and the broader economy. Create your live VT Markets account and start trading now.

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

Deutsche Bank expects the European Central Bank to keep policy unchanged at its meeting on 19 March, despite uncertainty linked to the Middle East conflict and higher energy prices. It anticipates the ECB will restate its aim of maintaining price stability and its ability to adjust policy if needed. The bank expects the ECB to note greater near-term uncertainty and upside inflation risks, while taking more time for medium-term assessment. It says a more hawkish view on medium-term inflation would require more data.

Baseline Energy Assumptions

It outlines a baseline energy case of oil at USD80 per barrel and gas at EUR50 per MWh, which it describes as a moderate, temporary shock. Under this case, it says tighter policy would not be warranted unless inflation expectations look at risk of becoming unanchored. It also sets out an adverse scenario with energy costs about 50% higher: oil at USD120 per barrel and gas at EUR75 per MWh. In that scenario, it says the risk of inflation becoming a problem would rise. The article notes it was produced using an AI tool and checked by an editor. We recall how around this time last year, in March 2025, the view was that the European Central Bank would hold policy steady despite uncertainty. The focus then was on potential energy shocks and the risk of inflation expectations becoming unanchored. That flexible stance serves as a useful guide for the current environment.

Positioning For Market Volatility

Today, with the latest Eurostat flash estimate showing Eurozone inflation ticking up to 2.7% in February from 2.5% previously, we see a familiar challenge. While Brent crude is hovering at a manageable $82 per barrel, this is a notable increase from the low $70s seen just a few months ago, reigniting concerns about imported price pressures. This data complicates the ECB’s expected path for rate cuts later this year. Given this backdrop, traders should consider that market volatility may be underpriced. Buying straddles or strangles on the Euro Stoxx 50 index could be a prudent strategy to profit from a significant move in either direction following the next ECB announcement. The current consensus for a summer rate cut could easily be challenged, leading to sharp repricing. For those focused on interest rates, the forward curve for EURIBOR futures may be too aggressive in pricing in monetary easing. We see an opportunity in positioning for a flatter curve, anticipating that the ECB will be forced to hold rates higher for longer than many expect. This reflects the central bank’s commitment to price stability, a theme that was also stressed last year. The risk of an adverse energy shock, similar to the scenario contemplated in 2025, should not be ignored. Traders could use out-of-the-money call options on oil futures as a cost-effective hedge against a sudden spike in energy prices. Such a spike would significantly increase the probability of a hawkish response from the ECB, disrupting current market expectations. Create your live VT Markets account and start trading now.

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

US EIA data showed a US natural gas storage change of -38B for the week ending 6 March. The forecast was -42B. The reported withdrawal was 4B smaller than expected. This means storage fell by less than the forecast.

Implications For Near Term Pricing

The recent natural gas storage draw of 38 billion cubic feet was smaller than the 42 Bcf we expected. This points to a looser market than anticipated as the main winter demand season ends. We see this as a clear signal for downward pressure on prices in the near term. We’re seeing continued robust production, with output hovering near 105 Bcf per day, which is keeping the market well-supplied. This, combined with a milder-than-average end to the winter across key heating regions, has significantly curbed heating demand. Looking back from our perspective in 2025, this pattern is reminiscent of the El Niño winter of 2023-2024 which also led to very weak prices. This smaller withdrawal means that total gas inventories will remain significantly above the five-year average, likely by more than 30%. On top of our domestic weakness, European gas storage is also at historically high levels for this time of year, currently sitting near 60% full, which could soften the call on US LNG exports. These factors combined suggest a sustained period of price weakness.

Positioning And Trade Expression

Given this supply-heavy backdrop, we should consider establishing or adding to bearish positions. Buying put options on the April or May contracts could be a prudent way to capitalize on expected price declines into the shoulder season. This strategy allows us to define our risk while gaining exposure to the downside as the market digests this oversupply. Create your live VT Markets account and start trading now.

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