The ongoing conflict in Iran and concerns about disruption to the Strait of Hormuz continued to pressure financial markets last week. Oil prices remained highly volatile and tested the $100 level several times as traders focused on supply risks. At the same time, U.S. Producer Price Index (PPI) data came in stronger than expected, adding to concerns that inflation may stay elevated.
Market expectations have started to shift. Instead of expecting interest rate cuts, markets are now pricing in U.S. interest rate increases. U.S. stock markets fell for a fourth straight week as higher inflation and interest rate expectations weighed on sentiment. The Federal Reserve and the Bank of England both kept rates unchanged, in line with expectations.
The Bank of Japan also left rates unchanged, but comments from Governor Ueda were seen as slightly more open to future rate increases, which briefly supported the yen. Gold dropped below $5,000, falling about 10% as speculative selling increased, with the strong U.S. dollar putting pressure on prices.
Markets This Week
U.S. Stocks
As the conflict in Iran continues, equity markets are likely to remain under pressure. Rising inflation expectations in the U.S. and the possibility of interest rate increases are adding further downside risk. For now, focusing on selling opportunities remains the preferred strategy. However, rather than selling into weakness, it is better to wait for a pullback toward the 10-day moving average before entering short positions, as the market is already bearish. Resistance levels are at 46,500, 47,500, and 48,000. Support is seen at 45,000, 44,500, 44,000, and 43,500.
Japanese Stocks
The Nikkei index closed near its yearly lows as higher oil prices and continued weakness in U.S. equities pushed Japanese stocks lower. In addition, signals from the Bank of Japan suggesting possible future interest rate increases have added further pressure on the market. Selling remains the preferred short-term strategy. A break below 51,000 could trigger a sharper move lower, while a pullback toward the 10-day moving average may offer a better opportunity to enter short positions. Resistance is seen at 53,000, 54,750, 56,000, 57,000, and 58,000, while support is at 51,000円, 50,000円, and 49,000円.
USD/JPY
USD/JPY moved higher on the back of strong oil prices, testing resistance near the 160 level, with no clear sign of intervention from the Bank of Japan. Comments from the Bank of Japan regarding the possibility of intervention triggered a brief pullback, but the pair recovered and closed the week above the 10-day moving average, keeping the short-term bias bullish. For now, range trading between 158 and 160 appears to be the best short-term strategy. Resistance is at 160, 162, and 165, while support is seen at 158.50, 158.00, and 156.50.
Gold
Gold’s recent weak performance, despite the conflict in Iran, combined with a stronger U.S. dollar, led to a sharp decline once the $5,000 support level was broken, as speculators exited positions. The market is now clearly oversold, which could provide short-term buying opportunities this week. However, a break below the yearly low around $4,400 could trigger another significant move lower. Resistance is at $4,700, $4,850, $5,000, and $5,100, while support is at $4,400, $4,300, $4,200, $4,100, and $4,000.
Crude Oil
Resistance at $100 has limited further gains as the conflict in Iran continues and concerns about restricted oil supply remain. Despite this, oil has stayed above the 10-day moving average, showing continued strength. As long as the conflict continues and price holds above this level, buying on pullbacks remains the preferred 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 continued to test resistance near $75,000 as recent price stability encouraged speculative buying. However, weakness in U.S. equities reduced overall risk appetite, causing the market to pull back and close near the middle of the $65,000 to $75,000 range. Range trading 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: U.S. Construction Spending
- Tuesday: Japan National CPI and S&P Global Services PMI, E.U. HCOB Eurozone Manufacturing PMI, U.K. S&P Global Services PMI, U.S. S&P Global Manufacturing PMI
- Wednesday: Japan Monetary Policy Meeting Minutes, Australia CPI, U.K. CPI, U.S. Current Account
- Thursday: Japan BoJ Core CPI
- Friday: U.K. Retail Sales, U.S. Michigan Consumer Expectations
The main focus this week will be the conflict in Iran, as markets are starting to price in a longer war, despite comments from Trump suggesting the U.S. is close to meeting its objectives. Equity markets have been under steady pressure, and there is still a risk of panic selling if oil prices spike above $100 on further negative news from the region.
There is limited major economic data this week. The key releases include manufacturing PMI data from several countries, Japan’s Monetary Policy Meeting Minutes, and U.S. consumer sentiment data. Markets will be watching closely for any signs of how inflation and growth expectations are evolving.
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