Markets reacted to signs that the conflict with Iran could last longer than first expected. Oil was very volatile during the week. Crude briefly moved above $100 early in the week, then pulled back, but later climbed again and finished just below $100. The main concern is that Iran may try to disrupt oil shipments through the Strait of Hormuz, which is one of the world’s most important oil routes.
Stock markets were weaker. U.S. equity markets fell for the third straight week as higher oil prices raised concerns about inflation and reduced expectations for quick interest rate cuts. Japan’s Nikkei also declined despite the weak yen. The U.S. dollar stayed strong because rising energy prices could delay Federal Reserve rate cuts.
Economic data had less impact than the geopolitical news. Japan’s GDP came in stronger than expected, while U.S. inflation was roughly in line with forecasts. However, U.S. GDP and durable goods data were weaker than expected. Gold struggled to move higher as much of the geopolitical risk already appears to be priced in, and the strong U.S. dollar encouraged some selling.
Markets This Week
U.S. Stocks
The downtrend in the Dow has become stronger, and with the war unlikely to end quickly, following the trend appears to be the best strategy for now. Continued disruption from higher oil prices and possible shipping problems in the Middle East could have negative effects on the global economy. While the market is already bearish, traders may look for the Dow to rebound toward the 10-day moving average before considering new selling opportunities this week. Resistance levels are at 47,500, 48,000, 48,500, and 49,000. Support is seen at 46,500, 46,000, 45,730, and 45,500.
Japanese Stocks
Japan is a major importer of oil, so higher energy prices could have a negative impact on business costs and economic data, even though the government plans to release oil reserves to help stabilize supply. The Nikkei’s recent downtrend has strengthened, and the growing risk that the Bank of Japan may intervene to support the yen could also create pressure on Japanese stocks. Like the Dow, the 10-day moving average is now pointing lower and may act as resistance this week, making it a possible level where traders look for selling opportunities. Resistance is seen at 54,750, 56,000, 57,000, and 58,000, while support is at 52,000円, 51,000円, and 50,000円.
USD/JPY
Higher oil prices are increasing inflation expectations in the United States, reducing the chances of interest rate cuts and supporting the U.S. dollar. USD/JPY closed just below the 160 level, which is an area where the Bank of Japan has intervened in the past. Markets are clearly aware of the intervention risk, so traders may be cautious about buying at these levels. However, if the war continues and the Bank of Japan does not intervene, the pair could continue to move higher. Resistance is at 160, 162, and 165, while support is seen at 159.00, 158.00 and 156.50.
Gold
Gold tried to move higher early in the week as tensions in Iran increased, but many traders were already long and the stronger U.S. dollar limited gains. As a result, gold finished the week just above the important $5,000 level. Short-term indicators have turned slightly negative, and if the market breaks below $5,000 this week it could trigger a quick move lower. Resistance is at $5,200, $5,250, $5,400, $5,418, and $5,500, while support is at $5,000, $4,900, and $4,850.
Crude Oil
Crude oil opened the week with another gap higher as fighting in Iran intensified, but prices briefly pulled back to the 10-day moving average, which held as strong support. As the week progressed, concerns grew that the war could last longer than expected and that Iran may try to disrupt oil shipments from the Middle East. Oil finished the week strongly, and although buying near the $100 resistance level may be late, looking to buy on pullbacks while the conflict continues could be the better strategy this week. Resistance is at $100, $110, $120, $125, and $130, while support is at $90, $80, $75, $70, and $67.5.
Bitcoin
Bitcoin recovered from support during the week, attracting some speculative buying as trading conditions remained relatively quiet and many traders focused on other markets. The market continues to move sideways, and range trading between $65,000 and $75,000 remains the preferred short-term strategy. Resistance is at $75,000, $80,000, and $85,000, while support is at $65,000, $60,000, and $55,000.
This Week’s Focus
- Monday: China Industrial Production and Unemployment Rate, U.s> NY Empire State Manufacturing Index and Industrial Production
- Tuesday: Australia RBA Interest Rate Decision, E.U. ZEW Economic Sentiment, U.S. Pending Home Sales
- Wednesday: Japan Trade Balance, E.U. CPI, U.S. PPI, Factory Orders and Fed Interest Rate Decision
- Thursday: Australia Unemployment Rate, Japan BoJ Interest Rate Decision and Industrial Production, U.K. Unemployment Rate and BoE Interest Rate Decision, U.S. Building Permits, E.U. ECB Interest Rate Decision
- Friday: E.U. Trade Balance
Another volatile week is likely ahead, with many trading opportunities as markets begin to assess how much damage the war in Iran could cause to the global economy. Equity markets have continued to fall, raising the risk that panic selling could start to appear if sentiment worsens, while oil prices could spike higher again if tensions escalate. USD/JPY has also moved close to 160, bringing the market near levels where the Bank of Japan could consider intervention.
Several major central banks are meeting this week. The U.S., Japan, and the U.K. are expected to keep interest rates unchanged, while Australia may raise rates. Markets will closely watch the central bank statements for clues about future policy, especially as higher oil prices could keep inflation elevated and complicate rate decisions.
