US President Donald Trump told Fox Business Network on Monday that Iran wants a deal, and said it could be reached within five days or sooner, according to Reuters. He said the latest talks between US envoys Steve Witkoff and Jared Kushner and their counterparts took place on Sunday night.
Crude oil prices fell after the report, with West Texas Intermediate (WTI) trading below $90 and down about 9% on the day. US stock index futures rose between 2% and 2.2% on the day.
Risk On Risk Off Basics
“Risk-on” and “risk-off” describe how much risk market participants are willing to take. In risk-on periods, they tend to buy higher-risk assets, while in risk-off periods they prefer safer assets.
In risk-on conditions, shares often rise, many commodities (except gold) can gain, commodity-exporter currencies may strengthen, and cryptocurrencies can rise. In risk-off conditions, bonds—especially major government bonds—often rise, gold can rise, and safe-haven currencies such as the US Dollar, Japanese Yen, and Swiss Franc can gain.
Currencies that often strengthen in risk-on markets include the Australian Dollar, Canadian Dollar, and New Zealand Dollar, as well as the Ruble and South African Rand. Risk-off strength is often seen in the US Dollar, Japanese Yen, and Swiss Franc.
We remember last year when talk of a US-Iran deal immediately sent oil prices tumbling. West Texas Intermediate crude fell nearly 9% in a single day, dropping below $90 a barrel on that news. This event provides a clear template for how markets react to a sudden de-escalation in the Middle East.
With WTI crude recently trading over $105 a barrel due to renewed tensions in late 2025, the potential for a sharp reversal is significant. Any hint of diplomacy could trigger a rapid sell-off, much like the one we witnessed before. The Cboe Crude Oil Volatility Index (OVX) has been hovering near 45, showing the market remains nervous about supply disruptions.
Market Implications For Traders
A drop in oil prices would be a powerful catalyst for a “risk-on” move in the stock market. We saw S&P 500 futures rally over 2% on similar news, as lower energy costs are a major boost for corporate earnings and consumer spending. Therefore, call options on major indices could perform well in the event of any diplomatic surprise.
This risk-on sentiment would likely spill over into foreign exchange markets, favoring commodity-linked currencies. The Australian and Canadian dollars would be expected to strengthen significantly, as they did during similar risk rallies throughout 2025. We could look at positioning for a rise in pairs like AUD/JPY, which directly pits a risk-on currency against a safe-haven.
