Tensions between the U.S. and Iran increased last week, raising concerns about energy supplies from the Middle East. Projectiles reportedly hit Saudi Arabia’s East-West oil pipeline system, helping push WTI crude oil above $100. Higher oil prices and rising long-term U.S. interest rates put pressure on global stock markets throughout the week.
U.S. PPI and CPI inflation were close to expectations, but inflation remained high. This increased expectations of a U.S. interest rate hike, with the probability rising to around 90%. U.S. consumer sentiment was weaker than expected and fell for the second month in a row.
The Japanese yen continued to strengthen despite higher oil prices. U.S. Treasury Secretary Scott Bessent also suggested that the yen could strengthen further as markets focused on the Bank of Japan’s next move. In Europe, the ECB raised interest rates by 25 basis points to 2.5%, as expected, and also raised its inflation forecasts.
Markets This Week
U.S. Stocks
The Dow had a weak week as high inflation and rising crude oil prices continued to worry investors. The 10-day moving average has now turned lower, while the break below the recent 52,700 lows suggests that a medium-term downtrend may be starting. With momentum turning negative, focusing on selling opportunities looks more attractive for both short- and medium-term traders. Resistance levels are at 52,700, 53,000, 53,750, 54,000, 54,500, 55,000 and 56,000. Support is seen at 52,000, 51,500, 51,000 and 50,000.
Japanese Stocks
Growing expectations that the Bank of Japan could raise interest rates faster than previously expected, together with weakness in U.S. equities, put the Nikkei 225 under pressure last week. While the downtrend is not as strong as in U.S. equities, the short-term outlook remains weak. In the current environment, looking for selling opportunities when the market rises appears to be the better strategy. Resistance is at 66,000, 67,500, 69,500, 70,000 and 71,000. Support is at 64,000, 63,000 and 62,000.
USD/JPY
USD/JPY moved below the important 155.00 level early last week despite higher WTI crude oil prices, highlighting the recent change in sentiment toward the yen. Comments from the U.S. Treasury Secretary that he was confident the yen would strengthen encouraged further selling, while higher U.S. inflation produced only a short-term recovery. Selling pressure remains strong, although the market is oversold and trading near the lower Bollinger Band. Short-term buyers should therefore remain cautious and use tight stop losses, while medium-term traders may prefer to wait for a recovery before looking for selling opportunities. Resistance is at 154.50, 155.00, 157.00, 158.00, 159.00 and 160.00 while support is at 153.00, 152.50, 152.00, 150.00 and 149.00
Gold
The increasing likelihood of a U.S. interest rate hike at this week’s Federal Reserve meeting, together with higher WTI crude oil prices, saw sellers return to gold last week. Gold could remain under pressure, but support has continued to hold around the lows from the start of the month. This suggests sideways price action could continue in the short term, with traders watching for a break of this support before expecting a larger move lower. Resistance is at $4,400, $4,500, $4,600, $4,650, $4,700, $4,775 and $4,900, while support is at $4,300, $4,285, $4,225, $4,200, $4,125 and $4,100.
Crude Oil
WTI crude oil moved above $100 last week, reaching its highest level since May as the conflict in the Middle East continued to disrupt supplies with little sign of progress. The uptrend remains strong, but prices have risen significantly in a short period. A pullback toward the 10-day moving average is possible, with a larger decline likely if there is any positive news from the Middle East. Resistance is at $105, $110 and $115, while support is at $95, $90, $85, $80, $75, and $67.50.
Bitcoin
Bitcoin failed to break above the $82,000 resistance level again last week as expectations that the Federal Reserve will raise interest rates this week put pressure on the market. The 10-day moving average has now flattened, suggesting the recent trend is losing momentum. While the current range holds, range trading between support around $75,000 and resistance near $82,000 looks the better approach. Resistance is at $82,000, $85,000, $90,000, $95,000 and $100,000, while support is at $75,000, $65,000, $62,000, $60,000, $55,000 and $50,000.
This Week’s Focus
- Monday: Japan Industrial Production
- Tuesday: China Unemployment Rate, U.K. Unemployment Rate, E.U. Trade Balance and ZEW Economic Sentiment, U.S. NY Empire State Manufacturing Index
- Wednesday: Japan Trade Balance, U.K. PPI, E.U. Industrial Production, U.S. Retail Sales and Fed Interest Rate Decision
- Thursday: E.U. CPI, U.K. BoE Interest Rate Decision, U.S. Housing Starts and Pending Home Sales
- Friday: Japan National CPI and BoJ Interest Rate Decision, U.K. Retail Sales, U.S. Industrial Production
Central bank meetings will be the main focus this week. The Federal Reserve announces its decision on Wednesday, with markets seeing around a 90% chance of a 25-basis-point rate increase. The Bank of England is expected to keep rates unchanged at 3.75%, while the Bank of Japan will be closely watched for a possible rate increase toward 1.25%. The yen could see another volatile week, with traders watching comments from both Japan and the U.S. for signs of further yen strength. WTI crude oil will also remain in focus after rising above $100, as high energy prices could keep inflation and interest rates higher. Important data includes U.S. retail sales, EU CPI and Japan’s national CPI.
