Central bank meetings in the U.S. and Japan were the main focus last week. Both the Federal Reserve and Bank of Japan raised interest rates by 0.25% as expected, but their comments caused large market moves. All Fed members supported the rate increase, which surprised some traders. Higher U.S. interest rates and rising bond yields also put pressure on stock markets.
Oil prices rose strongly at the start of the week after attacks on oil facilities in Saudi Arabia increased concerns about supply from the Middle East. WTI crude oil moved above $100. Higher oil prices also increased concerns that inflation could stay high and interest rates could remain high for longer.
The Bank of Japan raised interest rates to 1.25%, with seven members voting for the increase and two voting against it. USDJPY moved higher on Friday after the BoJ statement, as some traders had expected a stronger signal about further rate increases. Following the rise, reports that the Bank of Japan had checked currency rates increased the risk of intervention and caused USDJPY to fall later in the day.
Markets This Week
U.S. Stocks
The Dow Jones fell for a third week in a row as high oil prices increased inflation concerns and raised expectations that the Federal Reserve could increase interest rates further. With little important economic data until Friday, oil prices could remain an important driver for stocks. Unless oil prices fall significantly, selling below the falling 10-day moving average remains the preferred approach. Resistance levels are at 52,000, 52,700, 53,000, 53,750, 54,000 and 54,500. Support is seen at 51,500, 51,000, 50,000 and 49,000.
Japanese Stocks
The Nikkei 225 rose more than 2% last week as oil prices eased from their highs and the Bank of Japan was less aggressive than expected about future interest rate increases. The recent short-term downtrend has been broken, with the market closing the week above the 10-day moving average. Range trading may be the better approach this week, with quieter conditions likely as Japanese markets are closed for holidays from Monday through Wednesday. 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
USDJPY had a volatile week, recovering above 155 as traders prepared for the central bank meetings. The Federal Reserve showed more concern about inflation than expected, while two Bank of Japan members voted against the rate increase. USDJPY moved close to 158 on Friday before reports that the BoJ had checked currency rates increased the risk of intervention and brought sellers back into the market. With the BoJ unlikely to raise interest rates quickly but intervention still a risk, sideways trading between 155 and 158 looks likely in the short term. Resistance is at 158.00, 159.00 and 160.00 while support is at 156.00, 155.00, 153.00, 152.50, 152.00, 150.00 and 149.00
Gold
Higher WTI crude oil prices and expectations of a U.S. interest rate increase pushed gold lower at the start of last week, with prices falling below the monthly lows. Despite the Federal Reserve suggesting that further rate increases could be needed, gold recovered as oil prices eased and buyers returned later in the week. The weekly close above the 10-day moving average and the recovery despite higher interest rates suggest the worst may be over for gold in the short term. Looking for buying opportunities on weakness is now the preferred approach. Resistance is at $4,400, $4,500, $4,600, $4,650, $4,700, $4,775 and $4,900, while support is at $4,300, $4,225, $4,200, $4,125 and $4,100.
Crude Oil
WTI crude oil moved higher early last week before falling back to around $100. Supply concerns eased later in the week on hopes that Saudi Arabia could find alternative ways to move oil and that attacks on oil facilities could slow. A break below $100 and the 10-day moving average could be a signal to look for selling opportunities this week. Resistance is at $105, $110 and $115, while support is at $95, $90, $85, $80, $75, and $67.50.
Bitcoin
Bitcoin tested support around $75,000 early last week as expectations of higher U.S. interest rates and rising oil prices put pressure on the market. Bitcoin also fell after the Clarity Act failed to pass, but selling did not continue and prices recovered strongly. The recovery from $75,000 support is encouraging, with buying on weakness preferred this week. A break above $82,000 could support a larger move higher. 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: None
- Tuesday: U.S. ADP Employment Change Weekly
- Wednesday: E.U. HCOB Eurozone Manufacturing PMI, U.K. S&P Global Manufacturing PMI, U.S. S&P Global Manufacturing PMI
- Thursday: Japan S&P Global Services PMI, Australia Unemployment Rate, E.U. ECB Economic Bulletin, U.S. Current Account and New Home Sales
- Friday: U.S. Durable Goods Orders and Michigan Consumer Sentiment
With little important economic data until Friday, traders will focus on the market reaction to last week’s Federal Reserve and Bank of Japan meetings. USDJPY will be closely watched, especially after reports of a rate check on Friday increased the risk of intervention. WTI crude oil will also remain in focus to see if prices can fall back below $100. Meanwhile, higher U.S. 10-year Treasury yields could continue to put pressure on stock markets.
