TD Securities expects the Bank of Canada’s April Monetary Policy Report to use higher oil price assumptions. It points to Brent at USD 90 and WTI at USD 85, compared with a previous baseline of USD 55 for WTI.

The USD 90/USD 85 assumption is linked to the average oil price since 28 January. TD Securities also cites its own baseline of USD 92 for WTI in Q2 and USD 85 by year-end.

It expects the higher oil assumptions to lift the Bank’s inflation track. It projects headline CPI to rise towards 3% in Q2 2026, then ease back towards 2% by end-2027.

It also expects smaller upward changes to the Bank’s core inflation forecasts. The April report may include a separate box examining how higher oil prices affect growth.

The article was produced using an AI tool and checked by an editor.

We expect the upcoming Bank of Canada report to factor in much higher oil prices, with WTI crude assumptions rising to around $85 per barrel. This is a significant jump from their previous baseline and reflects the reality of energy markets so far this year. This change will be the main driver of the Bank’s updated economic outlook.

This will directly translate into a higher inflation forecast, with headline CPI likely to approach 3% in the coming quarter. As a result, derivatives markets are already reducing the odds of a summer interest rate cut, with overnight swaps now pricing in less than a 40% chance of a move in July. The most recent March inflation data, which came in at a stubborn 2.6%, gives the Bank little reason to signal imminent easing.

For traders, this reinforces the case for a stronger Canadian dollar, as the combination of firm oil prices and a patient central bank is a powerful support. WTI crude has averaged over $84 since late January, providing a steady tailwind for the currency. We see potential for USD/CAD to test lower levels in the weeks following the Bank’s report.

While the inflation spike is seen as temporary, with a return to the 2% target still expected by 2027, the immediate policy path is what matters. This suggests positions that benefit from a flat or upward-sloping front end of the yield curve could be favorable. Traders may look at selling front-month Bankers’ Acceptance futures (BAX) to position for a hawkish hold from the Bank.

When we look back at the commodity price surge in 2022, the Bank of Canada acted decisively to control inflation expectations. That history suggests they will not rush to cut rates in the face of another energy-driven price increase. This precedent strengthens the credibility of a “higher for longer” stance.

The report will likely frame higher oil prices as a net positive for Canadian economic growth, further reducing the urgency for rate cuts. This underlying economic strength provides a fundamental reason for the Bank to remain on the sidelines. It gives them a clear justification to wait for more data before signaling any policy pivot.

UK Retail Sales rose by 0.7% in March, above expectations. The increase was mainly linked to higher fuel buying as prices rose following conflict in the Middle East.

Other UK data this week was constructive, but the Bank of England’s Decision Maker Panel survey pointed to softer growth ahead. Inflation expectations edged higher, nearing 4% and reaching the highest level since late 2023.

Uk Data Sends Mixed Signals

Short-term GBP/USD price action was described as neutral to bullish. A bullish “morning star” base pattern on the intraday chart was cited as supporting current momentum.

Key support was placed at 1.3450/60. If the pair moves through 1.3495/00, the next level mentioned was 1.3555.

The article states it was produced with the help of an AI tool and reviewed by an editor. It is attributed to the FXStreet Insights Team, which compiles market observations from external and internal analysts.

We are seeing a mixed picture for the pound right now. Recent UK retail sales data showed a 0.7% rise, mainly due to higher fuel prices, but broader business surveys suggest a soft outlook for economic growth. This conflict between a strong consumer print and a weak business forecast creates uncertainty for the weeks ahead.

Options Strategy And Key Levels

Inflation expectations are a key factor, as they are now nearing 4%, a level not seen since late 2023. This puts pressure on the Bank of England to remain vigilant, even with the weak growth outlook. The latest official CPI data from earlier this month confirmed this trend, coming in at 3.1%, slightly hotter than the 2.9% markets were expecting.

Given this setup, we see an opportunity in options to play the modest upside potential while managing risk. A bull call spread with strikes around the 1.3500 and 1.3550 levels could capture a potential rise while defining our maximum loss if the price stalls. This strategy aligns with the chart pattern showing a base forming around 1.3450.

We should also be mindful of the US dollar’s influence, as the Federal Reserve’s hawkish tone continues to provide a ceiling for GBP/USD. Last week’s strong US jobs report, which showed the creation of 215,000 new jobs, reinforces the idea that Fed rate cuts may be delayed further. This external pressure supports the case for a limited, rather than explosive, move higher in the pound.

Looking back to a similar period in early 2025, we saw strong services data get cancelled out by poor industrial production figures, leading to choppy, range-bound trading for several weeks. That experience suggests we should be cautious about chasing a breakout too aggressively right now. The technical support at 1.3450 is the critical level to watch for any change in this short-term bullish view.

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ING analysts Frantisek Taborsky and Zoltán Homolya project that the Magyar Nemzeti Bank will keep its base rate at 6.25% through 2026. They link this to geopolitical uncertainty, higher energy prices and Hungary’s vulnerabilities, and they expect a hawkish, wait-and-see approach.

They state that a rate cut is not expected in April. They also say the central bank may use firm communication aimed at foreign exchange stability, with attention on EUR/HUF levels.

Inflation Outlook And Policy Stance

They forecast inflation will keep rising over the rest of the year. They expect inflation to average 3.5% in the second quarter, move above the tolerance band in the second half of the year, and average 4.3% in the final quarter.

They add that, under their baseline view, they do not see a scenario for a rate cut this year while energy prices stay higher. They also outline a worst-case path where inflation exceeds 6% in the third quarter, which they say could lead to rate rises.

Given the expectation that Hungary’s central bank will keep its base rate at 6.25% for the remainder of the year, traders should reconsider any positions betting on monetary easing. The forward rate agreements market is still pricing in at least a 25 basis point cut by year-end, which creates a clear discrepancy with this hawkish outlook. This suggests opportunities in paying the fixed rate on Hungarian forint interest rate swaps, anticipating that short-term rates will remain higher for longer than the market currently expects.

The primary driver for this policy is persistent inflation fueled by high energy costs, with Brent crude oil prices holding around $95 per barrel this month. We saw this pressure in the latest March 2026 inflation data, which showed a headline reading of 3.7%, confirming an accelerating trend. As we project inflation to average 4.3% in the final quarter, traders can use inflation swaps to position for consumer prices rising above the official tolerance band later this year.

Fx Strategy And Eur Huf Levels

For the foreign exchange market, the central bank’s desire for stability suggests the EUR/HUF pair will face significant resistance above the 390 level. The forint has strengthened considerably from the weaker levels we saw during the energy price shocks of late 2025, and the MNB will use its hawkish tone to keep it that way. Therefore, selling call options on EUR/HUF with strikes above that level could be a viable strategy to collect premium from the expected range-bound trading.

However, there is a significant tail risk of an emergency rate hike if inflation were to spike above 6% due to a geopolitical shock. This makes the current environment of low realized volatility potentially deceptive, as the central bank is actively suppressing price swings. Traders could consider buying cheap, out-of-the-money options on either interest rates or the EUR/HUF as a hedge against a sudden, sharp policy reversal.

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The summer travel season is supposed to be when airlines print money. Passengers book months ahead, planes fly full, and fares climb. But this year, an uncomfortable gap has opened between what airlines are reporting and what’s happening at the gate.

The one thing that changed everything

U.S.-Israeli strikes on Iran disrupted traffic through the Strait of Hormuz, triggering what’s being called the aviation industry’s biggest shock since COVID-19. Jet fuel prices have nearly doubled since the conflict erupted, leaving carriers squeezed between spiralling costs and tickets sold months in advance at prices they can no longer adjust.

Fuel typically accounts for around a quarter of airline operating expenses. Double it, and the business model starts to buckle.

Jet fuel in the U.S. was at $3.51 a gallon this week — down from a peak of $4.78 on April 2, but still far above the $2.39 it sat at on February 27, the day before the first strikes on Iran. Full price analysis can be monitored on IATA.

Why Q1 looks better than it is

Here’s the puzzle. Despite all of that, most major U.S. airlines just posted revenue growth. So what’s going on?

The short answer: Q1 is a delayed snapshot.

Airlines sell most seats weeks or months ahead. The fares locked in for January through March were priced before February 28 and stayed resilient. The fuel shock arrived mid-quarter, but the revenue to absorb it had already been set.

Think of it like a restaurant that locked in ingredient prices before a supply crisis hit. The first week’s menu looks fine. It’s the reprinting of next month’s menu that tells the real story.

Q1 results show a business that hadn’t yet felt the full weight of what hit it.

Reading the numbers: a quick primer

Two figures are appearing in airline earnings coverage right now. Here’s what they actually mean:

• EPS =earnings per share. [Company’s net profit ÷ total shares in circulation = EPS] If an airline earns $700 million and has 100 million shares, its EPS is $7. It’s a standard way to measure profitability that strips out company size, making it easier to compare across carriers or against analyst expectations. > When United cuts its EPS forecast from $12–$14 to $7–$11, that’s not a rounding error — it’s roughly $500 million in expected profit evaporating from the outlook, per share calculation.
  
• Full-year guidance follows a simpler logic: [What management expected to earn − what the cost shock has changed = revised guidance] Companies set this at the start of the year and update it as conditions shift. A cut means: we expect to earn less than we said. A suspension, as Alaska Air did this week, means something harder to price: we can’t see far enough ahead to give you a number at all. Markets tend to react more severely to suspensions than cuts, because uncertainty is harder to value than bad news, especially for CFD trades.

Together, EPS and guidance updates are how earnings season translates into stock movement.

A company can post strong Q1 revenue and still see its stock fall. The guidance update signals that the good quarter was the exception, not the trend. That’s the dynamic playing out across U.S. airlines stocks right now.

How the carriers are positioned

Q1 revenue records released this week included these airline companies:

United (UAL) beat analyst expectations in Q1, and CEO Scott Kirby confirmed a “strong first quarter”, a signal that its push into premium cabins is holding. Higher-yield passengers are less likely to defect when fares rise, which is precisely the insulation United built.

Southwest (LUV), flying almost entirely domestic and carrying less debt than the network carriers, is the most stable read among the majors right now even if margins lag its more international peers. It held full-year EPS guidance at $4 and is projecting Q2 unit revenue growth of 16.5–18.5% even if CEO Bob Jordan noted “significantly higher fuel costs”.

American (AALG) tells a different story. Q1 revenue hit company record at $13.91 billion, CEO Robert Isom expressing confidence that “even in a volatile operating environment, our pretax margin improved by nearly 2 points year over year”. However, the airline still posted an adjusted net loss of $0.40 per diluted share. Its full-year forecast has been cut, with the lower end now projecting a loss, and its fuel bill is expected to rise by more than $4 billion this year.

Record revenue and a net loss in the same quarter is what a cost structure under genuine stress looks like. When put in comparison, American (AALG) carries more debt and generates less premium revenue than United (UAL), leaving it with fewer levers to pull as Q2 costs arrive in full.

One telling detail: American’s stock rose in pre-market trading after results, as investors reacted positively to losses that were smaller than expected. The bar had been set low enough that missing by less than feared counted as good news. If Q2 guidance disappoints from here, the reaction is unlikely to be as forgiving.

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What Q2 and Q3 will show

Q2 and Q3 will carry no such buffer. New bookings are being priced into a different cost environment entirely. Fares are already running about 20% higher than a year ago. Whether passengers, particularly leisure travellers, keep paying that through peak summer is what the next two earnings rounds will actually measure.

The July earnings round is when the picture comes into focus. By then, every forward booking will have been priced after the conflict began. Full-quarter fuel costs will land without the advance-sale cushion that softened Q1. Load factors will reflect whether passengers are absorbing the fare increases or quietly booking less.

A few things to watch:

• Whether hedging positions protected margins through Q2 or left carriers exposed to spot prices
• Load factors on leisure routes, where demand is most price-sensitive
• Any further guidance suspensions — Alaska Air already pulled its full-year outlook entirely
• How U.S. transatlantic routes hold up as European fuel supply tightens Jet fuel supply in Europe

Stay tuned with VT Market’s Earnings Season focus.

For Now

For traders, the divergence between carriers is the most actionable theme.

United and Southwest are better hedged, has stronger balance sheets, and less leverage, the names most likely to hold up if fuel stays elevated.

American and the more indebted carriers carry more downside risk and in balance, opportunities for sharp movement, before the lag between costs and pricing catches up.

A Hormuz resolution would likely reset the sector sharply upward. Continued disruption means more guidance cuts, more dispersion between the stronger names and the weaker ones, and a summer earnings season that makes Q1 look comfortable by comparison. Either way, the next round of Q2 updates, landing in July, will be the first honest reckoning with what this fuel shock actually costs.

The holidays are booked. Whether the profit follows is still very much up in the air.

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TD Securities economists expect the Bank of England to keep Bank Rate at 3.75% and to vote unanimously. They anticipate a continued wait-and-see approach to assess how the conflict affects domestic prices beyond energy.

They expect limited changes to the policy statement, including wording that CPI inflation will be higher in the near term. They also expect the MPC to note increased risk of second-round effects.

Policy Outlook And Projections

The economists expect the Bank’s projections to show higher inflation in Years 1 and 2. They expect slightly stronger GDP growth at first, followed by weaker growth later.

They forecast Year 2 inflation to be slightly above 2%, compared with a previous projection of 1.8%. They also see a risk that Year 3 inflation rises above the February forecast of 2.0%.

They expect the MPC to place more focus on scenario analysis in its projections. One possible scenario involves more severe energy price pressures, with higher inflation and weaker GDP growth.

Looking back to 2025, we recall the Bank of England holding rates at 3.75%, signalling a “wait-and-see” approach that turned out to be a hawkish pause before more hikes. Those further increases were necessary as inflation proved stickier than anticipated, pushing the Bank Rate to a cycle peak of 5.25%. Today, the debate has completely shifted from how high rates will go to when they will be cut.

Trading Implications For Rates Markets

The concerns from last year about inflation remaining above target have largely materialised, despite the aggressive policy tightening that followed. The latest data from the Office for National Statistics shows UK CPI is still running at 2.4%, which is above the 2% goal. This stubbornness is now being weighed against a much weaker growth backdrop than was forecast, with the economy barely expanding over the last two quarters.

This new reality means derivative traders should be focused on the timing and pace of monetary easing. While last year was about pricing in a prolonged hold or further hikes, the SONIA futures market now implies the Bank will begin cutting rates within the next six months. The primary play is positioning for this pivot, with swaps and options structured around key MPC meeting dates later this year.

The old emphasis on scenario analysis remains highly relevant, creating opportunities for those trading volatility. Given the conflicting data of sticky inflation and near-zero GDP growth, implied volatility on short-sterling options has been elevated. This suggests that strategies designed to profit from sharp moves in either direction, rather than a specific directional bet, could be advantageous in the coming weeks.

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US 1-year consumer inflation expectations were 4.7% in April. The market forecast was 4.8%.

The April figure was 0.1 percentage points lower than expected. It indicates a slightly smaller rise in expected prices over the next year than forecast.

This new inflation data hints that price pressures might be easing faster than we anticipated. We believe this gives the Federal Reserve more room to adopt a less hawkish stance in their upcoming meetings. This could be the catalyst for a shift in market sentiment over the next few weeks.

We remember looking at similar data back in April 2025, when the 1-year consumer inflation expectation also dipped to 4.7%. However, the context is different now, as the Fed has held rates steady at 4.5% for the last six months. This new data point, combined with last week’s jobs report showing a slight cooling, strengthens the case for a potential pivot later this year.

We are looking at options on major indices like the S&P 500 and Nasdaq 100. Buying call options or call spreads could offer a favorable way to capture potential upside if the market rallies on this news. The technology sector, in particular, could benefit from any hint of lower interest rates ahead.

The interest rate futures market will likely price in a more dovish Fed path following this report. We anticipate that yields on government bonds will drift lower in response. Trading long positions in Treasury futures could be a direct way to play this expectation.

This kind of data tends to soothe market nerves, which could lead to a drop in implied volatility. The VIX is currently sitting around 18, and we could see it head back towards the 15 level. Selling out-of-the-money VIX call options might be a strategy to consider for those expecting a calmer market.

The US Michigan Consumer Expectations Index for April came in above expectations. The forecast was 46.1 and the actual reading was 48.1.

We are looking back at the Michigan Consumer Expectations beat from April of last year. That surprising strength in 2025 preceded a period of stubborn inflation that kept the Federal Reserve hawkish for longer than anticipated. This past pattern is a useful guide for our current market positioning.

Historical Signal And Market Context

Today, the situation is complicated by conflicting signals. The latest March 2026 CPI report showed core inflation holding at a sticky 3.7%, while recent retail sales figures have been flat. This creates significant uncertainty about the Fed’s next move and the health of the economy.

Given this uncertainty, traders should consider buying protection against increased market swings. Options on the VIX index, with the VIX itself recently climbing towards 19, offer a direct way to position for higher volatility in the coming weeks. This is a prudent move when economic data is sending mixed messages.

We should also be positioned for the possibility of interest rates staying higher for longer. Buying put options on long-duration Treasury ETFs, like TLT, provides a hedge against a hawkish surprise from the Fed. This strategy would benefit if bond prices fall due to persistent inflation fears, a scenario we saw play out in late 2025.

With consumer strength now in question, we should look at options on the consumer discretionary sector. Buying puts on ETFs like XLY could be effective if spending continues to weaken as we head into the summer months. The market seems too optimistic on the consumer’s health right now.

Positioning For Volatility And Rates

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In April, the United States UoM 5-year consumer inflation expectation was 3.5%.

This was above the expected level of 3.4%.

This report suggests that inflation may be more persistent than previously thought, which could keep the Federal Reserve from cutting interest rates. We should anticipate that the Fed will maintain a hawkish stance in its upcoming communications. This changes the calculus for rate cuts previously expected in the second half of 2026.

Given this, we are looking at interest rate derivatives that profit from higher rates for longer. SOFR futures contracts for December 2026 have already seen their implied yields tick up by several basis points, now pricing in almost no chance of a rate cut this year. Traders should consider positions that reflect this diminished probability of near-term monetary easing.

For equity indices, this environment acts as a headwind, particularly for growth and technology stocks. We are considering buying put options on the Nasdaq 100 (NDX) to hedge against a potential downturn. This is a pattern we observed closely during the 2022-2023 tightening cycle, where rising rate expectations consistently pressured equity valuations.

Market volatility is likely to increase as the Fed’s path becomes more uncertain. The VIX index, which has been hovering near a relatively calm 15, has already jumped to over 17 on this news. We see an opportunity in buying VIX call options, as these expectations could lead to wider trading ranges in the S&P 500.

In currency markets, a more aggressive Fed policy strengthens the U.S. dollar. The Dollar Index (DXY) is now approaching its year-to-date high of 106.50. We believe long positions on the dollar against currencies with more dovish central banks, such as the Japanese Yen, will be a favorable trade.

National Bank of Canada analysts Ethan Currie and Taylor Schleich expect the Bank of Canada to keep the overnight target rate at 2.25%. This would be a fourth consecutive hold.

They expect the Bank to repeat that policy is appropriately calibrated. They expect policymakers to look through a war-related spike in headline Consumer Price Index (CPI) inflation because core inflation remains soft.

Inflation Outlook And Core Trends

The update may include a higher all-items inflation outlook due to higher petrol prices. Core inflation projections are expected to change only slightly.

Gross Domestic Product (GDP) growth projections may be trimmed modestly. This follows weaker-than-expected Q4 2025 results, below-estimate tracking for Q1 2026, and an underwhelming labour market.

The Bank may state that risks to growth lean lower, while risks to inflation lean higher. The piece notes it was produced using an Artificial Intelligence tool and reviewed by an editor.

We expect the Bank of Canada to hold its key interest rate at 2.25%, continuing the pause that began back in October 2025. This decision is widely anticipated, with overnight index swaps showing virtually no chance of a rate change at the next meeting. The market has correctly removed the pricing for rate hikes in 2026 that we saw earlier in the year.

Market Strategy And Currency Implications

The latest inflation data from March 2026 supports this steady policy, even though it creates a confusing picture for the market. While headline CPI remains elevated at 3.8% due to the war’s impact on gasoline prices, core measures which the Bank focuses on are behaving well, sitting just below target at 1.9%. This divergence allows the central bank to justify its patient stance and look through the temporary energy shock.

Economic growth figures confirm the Bank’s cautious approach and provide a reason to bet against rate hikes. The disappointing 0.5% annualized GDP growth we saw in the fourth quarter of 2025 has been followed by weak job numbers, with Canada adding only 10,000 jobs last month and the unemployment rate rising to 6.3%. This underlying softness suggests the next move from the Bank is just as likely to be a cut as a hike, although not for several months.

For derivatives traders, this stability in the front-end of the yield curve suggests selling volatility is the primary strategy for the coming weeks. Selling options on CORRA futures that expire in the next one to two months could be profitable as the Bank is unlikely to signal any policy shift. However, the skewed risks of lower growth and higher inflation warrant buying longer-dated options as a cheap hedge against an eventual, more dramatic policy change later this year.

This policy divergence is also creating a tug-of-war for the Canadian dollar. The Bank’s dovish stance is a headwind for the currency, but elevated oil prices, with WTI holding firm around $95 a barrel, are providing significant support. This conflict suggests using FX options to trade a range-bound USD/CAD, as the currency will likely struggle for direction until one of these major forces gives way.

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A Reuters poll found that 84 of 85 economists expect the European Central Bank to keep its deposit rate at 2% at the April meeting. This points to broad agreement on no near-term change.

For later meetings, 44 of 85 economists now expect a rise to 2.25% as early as June. In late March, 38 of 60 economists expected no change through 2026.

Further out, 50 of 85 economists expect at least one rate rise this year, up from 21 of 60 in the prior poll. This shows a move towards expecting tighter policy than before.

The survey links these shifts to uncertainty about the euro area inflation outlook. It suggests the ECB may hold rates soon while allowing for later changes if inflation stays elevated.

A consensus is forming that the European Central Bank will hold its deposit rate steady at its next meeting. However, this apparent calm is misleading as the ground is shifting beneath the market. With recent Eurostat data showing headline inflation holding at a stubborn 2.6% in March 2026, the pressure on the ECB is building.

We see a clear repricing of future interest rate hikes, which presents an opportunity. The ESTR forward market is now pricing in a greater than 70% probability of a rate hike by the July 2026 meeting, a significant jump from just a few weeks ago. This means that while a hold is expected now, the market is quickly anticipating a more hawkish turn very soon.

For traders, this growing uncertainty suggests that options on short-term interest rates are becoming more attractive. Implied volatility on Euribor futures is likely to rise as the debate between a hold and a hike intensifies. Buying options allows for a defined-risk way to position for a surprise move from the central bank in the coming months.

Positions that bet on higher rates further out the curve should be considered. This could involve selling Euribor futures contracts for the later part of 2026 or entering into pay-fixed interest rate swaps. The trend is clearly shifting away from the dovish stance we saw throughout most of 2025.

We only need to look back to the 2022 tightening cycle to remember how quickly sentiment can pivot. The market was slow to react then, and those who positioned early for higher rates were rewarded. We appear to be in the early stages of a similar dynamic today as economists rapidly adjust their forecasts.

This rapid shift in expectations reflects the persistent inflationary pressures that the ECB can no longer ignore. Any hawkish language in the upcoming press conference could accelerate this repricing, validating positions that anticipate tighter monetary policy.