US stocks fell toward the end of last week after CPI and PPI data came in higher than expected. This increased worries that US inflation may stay high, which pushed long-term US interest rates higher. Higher rates were negative for equities but helped strengthen the US dollar.
USD/JPY rose as the dollar strengthened and the yen stayed weak. There was no clear sign of direct yen-buying intervention from Japanese authorities. Some US officials suggested that higher interest rates in Japan would be a more effective way to support the yen. The yield on Japan’s 10-year government bond also rose to 2.72%, its highest level since 1997, as investors remained worried about Japan’s large government debt.
WTI oil moved back above $100 as negotiations failed to produce a positive result and supply concerns continued. In the UK, political uncertainty hurt Sterling as the prime minister lost support, causing GBP/USD and GBP/JPY to close near their weekly lows. Gold also fell as the stronger US dollar reduced demand.
Markets This Week
US Stocks
The Dow continued to face resistance near the highs from earlier in the year, while technology stocks remained more in favour with investors. However, Friday’s sharp fall, triggered by concerns about high US inflation, pushed the index below the 10-day moving average. This is a potentially negative technical signal. For this week, sideways to lower trading looks most likely. With few major economic indicators due, market attention is likely to remain focused on the inflation outlook. Buying near strong support may still offer opportunities, but traders should be cautious if selling pressure continues. Resistance levels are at 50,000, 50,500 and 51,000. Support is seen at 49,000, 48,500, 48,000, 47,000 and 46,000.
Japanese Stocks
Despite hitting a new record high, the Nikkei 225 closed lower last week as losses in US equities negatively impacted investor sentiment. Concerns about a potential increase in official Japanese interest rates to support the weak yen also weighed on Japanese stocks. The index has risen significantly in recent weeks, but with prices now below the 10-day moving average, sideways to lower trading looks more likely this week. Resistance is seen at 63,000, 64,000, 65,000, 66,000 and 67,000, while support is at 61,000, 60,000, 58,500 and 57,000.
USD/JPY
USD/JPY had a very strong week as higher-than-expected US inflation data widened the gap between long-term US and Japanese interest rates, encouraging more buying. High WTI oil prices also added pressure on the yen. Despite moving above 158.00, an area where the Bank of Japan has intervened before, there was no clear sign of intervention this time. The Bank of Japan may now consider whether an interest rate increase could help stop yen weakness, but that could also create risks for the Japanese economy. Last week’s move higher surprised many traders, but further gains may become more difficult from here. For this week, looking for selling opportunities ahead of 160.00 may be the best approach. Resistance is at 159.00, 160.00 and 160.50, while support is seen at 158.00, 157.00, 156.00, 155.00 and 154.00.
Gold
Higher long-term US interest rates and a stronger US dollar were negative for gold last week, pushing the market lower and leading to a sharp sell-off on Friday. Gold managed to hold support around the April lows, so range trading conditions are still in place for now. In the short term, the market looks a little oversold, which means support may continue to hold. However, the risk of a quick fall is increasing if the US dollar strengthens further and long-term US interest rates continue to rise. Resistance is at $4,750, $4,900, $5,000, and $5,100, while support is at $4,550, $4,500, and $4,400.
Crude Oil
Another week of headlines but no clear conclusion to the war in Iran, together with limited supplies from the Middle East, helped WTI crude oil continue to push higher above $100. There is always a risk of a quick fall if negotiations make progress, but for now the market remains supported. Short-term range trading looks like the best approach this week, as long as WTI can hold above $100. Resistance is at $110 and $120, while support is at $100, $90, $80, $75, $70, and $67.50.
Bitcoin
Bitcoin broke its recent uptrend last week as higher US interest rates and weaker US equities encouraged selling in relatively quiet market conditions. The 10-day moving average is now pointing lower, following the short-term downtrend. For this week, looking for selling opportunities close to the 10-day moving average may be the best approach. Resistance is at $80,000, $85,000, and $90,000, while support is at $75,000, $65,000, $60,000, and $55,000.
This Week’s Focus
- Monday: China Unemployment Rate and Industrial Production
- Tuesday: Japan GDP and Industrial Production, UK Unemployment Rate, EU Trade Balance, US Pending Home Sales
- Wednesday: UK CPI, EU CPI, US FOMC Meeting Minutes
- Thursday: Japan Trade Balance, Australia Unemployment Rate, EU HCOB Eurozone Manufacturing PMI, UK S&P Global Manufacturing PMI, US Housing Starts and S&P Global Manufacturing PMI
- Friday: Japan National CPI, UK Retail Sales, US Michigan Consumer Sentiment
While there are few major economic releases this week, the US FOMC Meeting Minutes will be the main event to watch. Markets may still see higher volatility than usual as the impact of stronger US inflation data continues to affect stocks, bonds, currencies, and gold.
USD/JPY will remain in focus, especially if the pair moves back toward 160. A move to this level could increase pressure on Japanese authorities to act, including possible yen-buying intervention. GBP/USD and GBP/JPY traders should also watch political developments in the UK, as uncertainty around the prime minister could continue to weigh on Sterling.
