The yuan is expected to move towards 6.80 against the US dollar for the first time in three years, while the People’s Bank of China slows the pace of gains through weaker daily fixings. The currency has been supported by first-quarter growth and exports, despite softer recent activity data and easing CPI inflation.

Chinese government bonds have been supported by a $51trn domestic savings pool and demand for local debt. The 10-year Chinese government bond yield has fallen below 1.79% (200dma), and a basket of CNY high-grade bonds leads the Bloomberg global fixed income aggregate year to date at about +1.1%.

China’s first-quarter growth rose to 5.0% year on year, up from 4.5% in the fourth quarter. First-quarter exports increased by 14.7%.

When we looked at the data in early 2025, the picture was one of robust strength, with strong Q1 growth and exports pointing toward continued Yuan appreciation. At the time, the path to 6.80 against the dollar seemed clear, supported by an outperforming bond market. The fundamental drivers supporting the Yuan have since shifted significantly.

The economic momentum we saw last year has faded considerably. China’s Q1 2026 GDP growth came in at 4.6%, missing forecasts and signaling a slowdown from the 5.2% full-year growth achieved in 2025. Furthermore, recent trade data for March 2026 showed a surprise 7.5% year-on-year fall in exports, a stark contrast to the double-digit growth seen in early 2025.

This weaker economic backdrop has reversed the Yuan’s trajectory, with the USD/CNY now trading around 7.24, far from the 6.80 level discussed last year. The People’s Bank of China has also shifted its stance, cutting its key one-year policy rate in February 2026 to support growth. The yield on 10-year government bonds has risen to 2.31%, reflecting changing rate expectations and a departure from the outperformance of last year.

For derivative traders, this environment suggests positioning for further measured Yuan weakness. Buying USD/CNY call options with strikes around 7.28 to 7.30 could provide upside exposure if the economic data continues to disappoint. This strategy allows traders to profit from a depreciating Yuan while capping downside risk to the premium paid.

We should also consider strategies that bet on lower volatility, as the PBoC is actively managing the currency’s decline to prevent sharp moves. Selling short-dated USD/CNY strangles could be effective if we expect the currency to trade within a stable range, albeit with a weakening bias. This approach benefits from time decay as long as the currency does not make a large, unexpected move in either direction.

USD/CHF fell on Friday as the Swiss Franc rose and the US Dollar weakened. The pair traded near 0.7800, down 0.46% on the day, and was set for a second weekly drop.

Sentiment improved after Iran said the Strait of Hormuz was open during a ceasefire period. The statement said passage for commercial vessels was “completely open” on a co-ordinated route.

US President Donald Trump announced a 10-day ceasefire between Israel and Lebanon on Thursday. Trump also said a US naval blockade would stay “in full force and effect” against Iran until a final agreement is completed.

Oil prices dropped after the announcement, with WTI falling nearly 10% soon after. The US Dollar Index slid to its lowest level since 27 February, then rebounded, and traded near 98.00 after touching about 97.63.

Lower oil eased inflation concerns and pushed US Treasury yields down. CME FedWatch showed markets leaning towards a Fed rate cut by December, versus hold probabilities of about 70% the prior day.

San Francisco Fed President Mary Daly said rates could stay unchanged, but could rise if inflation returns. Another round of US-Iran talks is expected this weekend.

Looking back at the events of 2025, we saw how geopolitical de-escalation can sharply impact markets. The reopening of the Strait of Hormuz triggered a significant drop in oil prices, which in turn weakened the US Dollar. Consequently, USD/CHF tumbled to levels around 0.7800 as risk appetite improved and Fed rate cut expectations surged.

The situation today in April 2026 presents a starkly different picture, creating a key divergence. The US Dollar Index is firm, recently trading above 105, unlike the sub-98 levels we saw during the 2025 de-escalation. This strength is partly fueled by the Federal Reserve’s current “higher-for-longer” stance as inflation remains persistent.

We see WTI crude oil currently stabilized near $85 a barrel, a far cry from the sub-$70 prices seen after the 2025 announcement. This suggests that any new geopolitical flare-ups in the Middle East could cause a rapid spike, making long volatility plays through options attractive. Traders should be positioned for sudden shifts in energy prices, as history shows they can change dramatically on a single headline.

With USD/CHF currently trading near 0.9150, the memory of its rapid fall in 2025 highlights its sensitivity to broad US Dollar sentiment. We believe the current elevated level presents an opportunity for traders to consider downside protection or speculative bearish positions. Purchasing put options on USD/CHF could be a cost-effective way to gain exposure to a potential drop if risk sentiment suddenly improves or the Fed signals a pivot.

The most critical lesson from 2025 was how quickly Fed rate expectations can reverse. While the CME FedWatch Tool now shows a very low probability of rate cuts in the next six months, any sign of easing geopolitical tensions or a sharp economic downturn could rapidly change that outlook. We should therefore monitor Fed speakers closely and consider using interest rate futures to position for a potential dovish shift.

Central banks are monitoring possible second-round effects linked to recent Gulf developments, rather than making immediate policy changes. Market attention is on how policymakers assess the wider economic consequences of events in the Gulf.

Bank of England Governor Andrew Bailey has softened the more hawkish tone he used at the last policy meeting. The Bank’s Chief Economist Huw Pill is expected to repeat that the main focus is on second-round effects.

Central Banks Watch Second Round Effects

At the European Central Bank, Chief Economist Philip Lane has said that clear effects from the war are not yet visible. As a result, any shift in policy messaging is likely to be delayed.

The report says it is too early for second-round effects to appear, so it is also too early for central banks to signal a change in stance. It adds that central bank commentary, alongside Gulf news, is shaping current market discussion.

The article notes it was produced with the help of an artificial intelligence tool and reviewed by an editor.

Central banks in Europe are signaling they will look through the immediate energy price shock from recent Gulf developments. They are instead waiting to see if higher energy costs translate into broader inflation, which we call second-round effects. This suggests a period of inaction, reducing the odds of surprise interest rate hikes in the near term.

Market Implications For Rates And FX

For traders focused on UK markets, this represents a notable shift. After the recent spike in Brent crude to over $100 a barrel, pricing for a Bank of England rate hike by June had jumped; however, those odds have now receded below 30% following the recent comments. The central bank appears more concerned with the UK’s fragile GDP growth, which was just 0.2% in the last quarter.

This official guidance toward stability suggests that implied volatility on short-term interest rate derivatives, like SONIA futures, is likely overpriced. We’ve seen bond market volatility ease, with the MOVE index pulling back to 98 from its recent high of 115. Selling options strategies that profit from range-bound price action could therefore be advantageous over the coming month.

The European Central Bank is following a similar playbook, which is a pattern we also observed in 2025 when they were slow to react to supply chain issues. With Eurozone core inflation falling to 2.7% in March 2026, policymakers have room to wait for more data before committing to any change. This reinforces the view that they will tolerate a temporary headline inflation spike without immediately tightening policy.

This divergence in tone, especially if the US Federal Reserve remains hawkish, could pressure European currencies. The recent dip in the EUR/USD from 1.09 to below 1.07 could continue if rate differentials widen. Derivative strategies that bet on limited upside for both the euro and British pound appear prudent for the second quarter.

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US shares rose on Friday after a 10-day Israel–Lebanon ceasefire began at 21:00 GMT on Thursday, and Iran said the Strait of Hormuz would be open to commercial traffic during the truce. The DJIA rose by more than 1,000 points to just below 49,800, the S&P 500 gained 1.5% to move past 7,100 for the first time, and the Nasdaq added 1.7%.

The Russell 2000 climbed 2.2%. DJIA futures rose overnight and tracked higher into the close, moving from about 48,700 early on to near 49,700 by late afternoon GMT.

Ceasefire Drives Equities Higher

Iran’s foreign minister said on X that commercial passage would be completely open for the truce period. President Donald Trump said Iran would never close the route again, while also saying the US Navy blockade of Iranian ports would continue until a peace agreement is reached.

Iran’s Tasnim agency said vessels linked to hostile nations would not be allowed through, and the strait would close again if the US blockade remains. WTI fell 14% to above $80 a barrel and Brent dropped 10% to above $89.

Boeing rose 3% and Royal Caribbean jumped 10%, with Amazon and Airbnb also higher. For the week, the DJIA was up 3%, the S&P 500 up 4%, and the Nasdaq up 6%, with attention turning to earnings and the upcoming PPI.

The massive risk-on rally has crushed implied volatility, with the VIX index likely falling below 14 for the first time in months. This makes hedging against a reversal extremely cheap. We should consider buying out-of-the-money puts on the SPY or calls on the VIX itself to protect against the ceasefire’s potential collapse.

The market has chosen to ignore the conflicting messages between Washington’s blockade and Tehran’s conditional reopening of the strait. This fragility is not priced in, creating a classic setup for a volatility spike if the deal falters over the next 10 days. A small position in VIX call options for May could provide a significant return if headlines turn negative.

Options Positioning For Oil And Travel

WTI crude’s 14% drop is one of the most severe one-day declines since the oil price collapse in 2020, suggesting the move may be overdone. While the path forward depends on politics, we can sell premium by using strategies like iron condors on oil ETFs. This approach bets that prices will now stabilize in a new range rather than immediately snapping back or continuing to plummet.

The rally in travel and leisure stocks was dramatic, driven by traders closing out their defensive short positions. We can still participate in this theme by using call options on airline and cruise ETFs to gain upside exposure with limited risk. Selling cash-secured puts on these names is also an option, as it allows us to collect premium while defining a lower price at which we’d be willing to own them.

With the geopolitical risk premium removed, market focus will pivot to the upcoming Producer Price Index report and Big Tech earnings. Options pricing for late April and early May expirations, which cover these key events, still shows elevated implied volatility. This indicates the market expects significant price swings based on fundamentals, even with the Middle East situation temporarily calmed.

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An April 1 update on the SP500 said a W-b rebound was under way into the April 18–28 window, based on Elliott wave analysis, market breadth and seasonality. A target of 6800–6900 was set using a 61.8–76.4% Fibonacci retracement of Wave-a plus past support and resistance.

The index moved above that zone and made new all-time highs, reaching and exceeding 7120 as it nears the mid-term election year average turn date of about April 18. The market has followed this seasonal pattern 75% of the time.

Examples from 2011, 2018 and 2020 show irregular flat 4th waves where B-waves can overshoot, after a missed target in the prior third wave, before a possible reversal. The 7120 level matches a 138.2% extension of Wave-1 (from the 2020 low to the 2021 high) measured from the 2022 low (W-2), and it was missed in January by about 120p (7002 vs 7120).

The March low is presented as a 4th wave, with a 5th wave now in progress, marked as “alt: 4, alt: 5”. The text also describes the 5th wave as a terminal wave.

Looking back at our analysis from last year, we saw how the S&P 500 followed a predictable seasonal pattern, peaking right around the April 18, 2025, timeframe we identified. The push to the $7120 level was a classic irregular wave, which was followed by a significant correction into late spring of 2025. This historical behavior serves as a critical guide for the market’s current position.

Today, on April 17, 2026, we see a similar setup, with the index pushing new highs near 7550 despite some concerning economic signals. For instance, the CBOE Volatility Index (VIX) has fallen to a low of 14, indicating a high degree of complacency among investors. This is happening even as the latest CPI report showed core inflation remains sticky at 3.1%, suggesting the Federal Reserve may have little room to lower interest rates.

This divergence between market calm and persistent inflation creates an environment ripe for a reversal, much like we saw last year. The strong upward momentum could be a final, exhaustive push, often called a terminal wave, before sentiment shifts. Therefore, traders should be considering strategies that protect against a potential downturn in the coming weeks.

One approach is to use put options to hedge long positions or speculate on a decline. Buying out-of-the-money puts, such as the May 7400 puts, offers a defined-risk way to profit from a market drop. The current low VIX makes these options relatively inexpensive compared to periods of higher market stress.

Alternatively, for those who believe the market may stall rather than fall sharply, selling call credit spreads is a viable strategy. A trader could sell the May 7600 call and buy the May 7650 call, collecting a premium with the expectation that the S&P 500 will not rally significantly past 7600 before expiration. This strategy benefits from both a sideways or a downward move in the market.

Just as we noted in 2025, the confluence of technical patterns and seasonality requires heightened attention right now. The old saying “sell in May and go away” has historical roots in these types of spring peaks. Monitoring for signs of trend exhaustion will be essential for managing risk and positioning for the market’s next major move.

Mary Daly, President of the Federal Reserve Bank of San Francisco, spoke on Friday at the University of California, Berkeley’s Fisher Centre. She said she is watching whether higher oil prices feed into the prices of other goods and services.

Before the oil price shock, she expected that one or two rate cuts in 2026 would be needed. She said the Fed could leave rates where they are, and is in a wait-and-see mode.

She said rates might need to rise if inflation accelerates. She also said rates could be cut if the conflict ends quickly, and that the outlook depends on how long oil prices stay higher and how persistent the conflict is.

Daly said low labour force growth is being offset by higher productivity growth. She said zero job growth could become the new steady state, and that the US is moving towards zero labour force growth because of demographics.

She said consumers are nervous about the economy but are still spending. She said businesses are cautiously optimistic, and that there is room to raise labour force participation.

She also said a lack of immigration matters, along with investment in technology.

We’re now in a “wait and see” mode, which means rate cut expectations for 2026 are fading. This shift is injecting uncertainty into the market, reflected in the VIX index, which has climbed above 18 this month. Traders should anticipate higher volatility across asset classes in the coming weeks.

The market was pricing in one or two rate cuts for 2026, but that view is now being challenged. The probability of a rate cut by September has fallen to below 30% according to recent Fed funds futures data. This suggests traders should unwind positions that relied on imminent easing and consider strategies that benefit from rates staying elevated.

The outlook hinges on the duration of the current conflict and its impact on oil, with WTI crude recently pushing past $95 a barrel. We saw back in 2022 how a sustained energy shock can force the Fed’s hand, so oil market volatility is the key variable to watch. Any signs that these higher energy costs are seeping into core inflation will be a major trigger for the market.

The idea that zero job growth could be the new normal is a critical shift in thinking for us. Even though the last jobs report showed a modest gain of only 85,000 jobs, the Fed may not view this as a sign of weakness requiring a rate cut. This is because higher productivity is currently compensating for slower labor force growth.

There is a clear disconnect between consumer sentiment, which has been trending lower, and actual retail spending, which saw a 0.5% increase last month. We are watching this closely, as any sign of consumer spending finally cracking under the pressure of high oil prices could quickly alter the economic outlook. This makes upcoming retail sales and confidence reports particularly important market-moving events.

GBP/USD rose in the North American session on Friday after reports said Iran reopened the Strait of Hormuz. The move followed an agreement on a ceasefire in Lebanon.

The British Pound reached a daily high near 1.3600 as the US Dollar weakened. At the time of writing, GBP/USD was 1.3567, up 0.36%.

We remember the market’s reaction in late 2025 when the Strait of Hormuz reopened, causing a sharp rally in GBP/USD toward the 1.3600 level. That event showed us how quickly a fall in geopolitical risk can weaken the US dollar as a safe-haven asset. The sudden de-escalation caught many traders off guard, benefiting those positioned for a stronger pound.

Today, implied volatility in the currency markets has fallen to its lowest level since early 2024, suggesting a broad sense of complacency. For instance, the CME’s British Pound Volatility Index (BVP) is currently hovering near 5.8, a significant drop from the double-digit figures we saw during past crises. This low volatility environment makes option premiums relatively cheap for those anticipating a future shock.

Fundamentally, the economic picture also supports a potentially stronger pound against the dollar. The latest data for the first quarter of 2026 showed UK core inflation remaining persistent at 3.4%, well above the Bank of England’s target. In contrast, U.S. inflation has moderated to 2.7%, giving the Federal Reserve more room to consider easing policy later this year.

Given this backdrop, buying long-dated GBP/USD call options appears to be a prudent strategy over the coming weeks. This allows traders to position for a potential upside move with a defined, limited risk. The current low volatility means the entry cost for these positions is unusually attractive.

However, we must also consider the opposite scenario, as history has shown how quickly risk sentiment can reverse. A sudden global flare-up would trigger a flight to safety, strengthening the dollar and pushing GBP/USD sharply lower, much like the initial market reactions during the 2022 global energy crisis. For this reason, hedging long positions with cheap, out-of-the-money puts could protect against an unexpected downturn.

Baker Hughes reported that the US oil rig count fell to 410. The previous count was 411.

This means the number of active US oil rigs decreased by 1 week on week. The data comes from Baker Hughes’ regular rig count report.

We’ve seen the US oil rig count dip by one to 410, which on its own is not a major move. This flat trend, however, indicates that American producers are holding back on significant new drilling. This capital discipline suggests future US supply growth will remain limited.

This stagnant rig count is happening while US crude production stubbornly hovers near record levels, recently reported by the Energy Information Administration at around 13.4 million barrels per day. The efficiency gains we saw through 2025 are likely reaching a plateau, meaning this lack of new drilling will be felt more acutely in the months ahead. This puts a firm floor under WTI prices.

Globally, the supply picture remains tight, with OPEC+ having recently signaled it will maintain its production cuts through the summer. Combined with demand forecasts for the second half of 2026 being revised slightly higher due to strength in Asian markets, the fundamental backdrop is supportive of higher prices. We are seeing inventories draw down more than expected, with commercial stockpiles falling by nearly 3 million barrels last week.

For derivative traders, this environment suggests volatility may be underpriced. The lack of a supply-side catalyst from the US makes the market more sensitive to any unexpected demand or geopolitical news. This points towards strategies that benefit from price stability or a gradual upward grind.

We believe buying call spreads on WTI for the third quarter is an attractive, risk-defined way to position for this tightening. It allows us to capture potential upside from a supply squeeze while limiting our upfront cost. Selling out-of-the-money puts for shorter-term expiries could also be used to collect premium, betting that the strong fundamental floor will hold.

Looking back at the sharp price fluctuations in 2025, it’s clear that periods of low rig growth often precede price spikes. Traders should therefore remain cautious of being outright short and consider these supportive fundamentals. Upcoming EIA inventory reports and any shifts in rhetoric from central banks regarding inflation will be critical to watch.

GBP/USD rose in Friday’s North American session after reports said Iran reopened the Strait of Hormuz following a Lebanon ceasefire agreement. The pair reached near 1.3600 and traded at 1.3567, up 0.36%.

Iran’s foreign minister said the Strait was open to commercial vessels for the rest of the US-Iran ceasefire period. Military ships, or ships from countries seen as hostile to Tehran, were not allowed.

The US President said the US military blockade would stay until a Washington-Tehran deal is reached. He said talks could start this weekend and said he would go to Pakistan once a deal is completed.

The US dollar hit a seven-week low as markets priced in possible Federal Reserve cuts in 2026. LSEG Workspace data showed expectations of nearly 16 basis points of easing towards year-end.

A San Francisco Fed official said policy was “slightly restrictive” and above a neutral rate of 3%. She indicated one or two cuts in 2026 were possible, but a rate rise could be needed if inflation increases.

Sterling also gained as markets priced in 24 basis points of Bank of England tightening. UK political coverage included reports of pressure on the Prime Minister after his former US ambassador failed background checks and was linked to Jeffrey Epstein.

On the chart, GBP/USD held above the 50-day, 100-day, and 200-day SMAs near 1.3530. Resistance was cited at a descending line from 1.3869, with support also linked to a rising line from 1.3035.

The reopening of the Strait of Hormuz is a significant de-escalation, removing a major risk premium from the market. We believe this pivot allows traders to focus on the growing policy divergence between a dovish Federal Reserve and a hawkish Bank of England. This fundamental backdrop is strongly supportive of a higher GBP/USD in the coming weeks.

For the US dollar side of the pair, the market is now aggressively pricing in Fed rate cuts. The CME’s FedWatch Tool now indicates a greater than 65% probability of at least one rate cut by the September 2026 meeting, a sharp reversal from just last month. This expectation is weighing heavily on the greenback and should continue to do so as long as geopolitical tensions ease.

Conversely, the Bank of England is facing a different problem, which supports the pound. With UK CPI inflation remaining stubbornly above the 2% target, last recorded at 3.1% in March 2026, the market is right to price in further tightening. This contrasts sharply with the situation in early 2025 when inflation was briefly thought to be under control.

Given this divergence, we see value in buying call options on GBP/USD to gain upside exposure while limiting risk. June 2026 expiry calls with a strike price around 1.3700 could offer significant leverage if the pair breaks its key descending resistance near 1.3869. This strategy capitalizes on the bullish momentum while defining the maximum potential loss.

However, we must hedge against the political risk in the UK, as we saw with the market volatility surrounding the 2025 general election. The pressure on Prime Minister Starmer could introduce sudden sterling weakness, making it prudent to consider cheaper, out-of-the-money put options as a portfolio hedge. Any breakdown of the ceasefire would also immediately reverse this trade, as oil prices would spike and safe-haven demand for the dollar would return.

Therefore, we will be closely watching the upcoming US Core PCE data for signs of cooling that would validate the Fed’s dovish pivot. The next UK jobs and inflation report will also be critical, as any strong numbers would reinforce the BoE’s hawkish stance and fuel the rally. We should use the technical support level around 1.3530 as a key area to monitor for the durability of this uptrend.

Gold rose on Friday as hopes of a US-Iran deal and reports that the Strait of Hormuz is “completely open” helped push oil prices lower. XAU/USD traded near $4,870, up about 1.67% on the day, and was set for a fourth straight weekly gain.

WTI fell to its lowest level since March 11 and traded around $81.50, down nearly 9% on the day. The US Dollar Index was near 97.73, at more than one-month lows and heading for a third consecutive weekly decline.

Lower oil prices eased near-term inflation concerns and supported expectations of Federal Reserve rate cuts later this year. Markets also watched for updates on weekend US-Iran talks, while the US naval blockade was described as remaining in place until a final agreement is completed.

Fars News Agency, citing an Iranian official, said Iran could close the strait again if the blockade continues, according to Reuters. The US calendar had no major data releases, with attention on Fed speeches before the blackout period ahead of the April 28-29 FOMC meeting.

Technically, gold held above the 20-day SMA at $4,646, with RSI (14) near 52 and MACD positive. Resistance sat near $4,931, with support at $4,646 and around $4,361.

Looking back at the events of April 2025, we saw a classic conflict for gold traders as geopolitical de-escalation fought against renewed bets on Federal Reserve rate cuts. The sharp drop in oil prices following hopes of a US-Iran deal put immediate downward pressure on inflation expectations, which is a key dynamic to watch for now. Derivative traders should be prepared for similar rapid shifts in sentiment based on geopolitical headlines.

The sudden revival of Fed rate cut expectations in 2025 was directly tied to that 9% single-day drop in WTI crude. Today, with core inflation having remained stubbornly above 3.5% through the first quarter of 2026, any sign of a significant oil price decline could trigger an even more aggressive repricing of Fed policy. This suggests that call options on gold could offer significant leverage if we see a similar supply-side shock that eases energy prices.

We should remember the Federal Reserve’s hawkish stance throughout late 2025, which contrasts with the dovish sentiment seen in that brief period. The Fed has consistently signaled it needs more than a temporary dip in headline inflation to pivot, meaning a deal in a conflict zone might not be enough this time. Therefore, traders should be wary of chasing the first rumor and instead look for confirmation in Fed speeches or a sustained drop in bond yields.

The fragility of the 2025 ceasefire is a critical lesson, as the market priced in the best-case scenario while the US naval blockade remained active. Today, underlying geopolitical risk remains high, providing a strong fundamental floor for gold prices. We can use this historical example to structure trades, such as buying puts on oil as a hedge for long gold positions when peace talks are announced.

Underlying demand remains a powerful force that was not a factor in the short-term news of 2025. Central banks continued their historic buying spree, adding another 1,047 tonnes to global reserves in 2025, building on the record purchases we saw in 2022 and 2023. This persistent demand from official sources suggests that any significant price dip caused by temporary risk-on sentiment should be viewed as a buying opportunity.

The technical setup from that time, with tightening Bollinger Bands signaling a period of low volatility before a major breakout, is highly relevant today. Given the conflicting fundamental drivers, traders should consider using options strategies that profit from a spike in volatility, such as a long straddle. This allows a position to capitalize on a sharp price move in either direction once the market picks a clear path.