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Japan’s service sector growth slowed notably in April as the impact of the Middle East conflict weighed on demand and business confidence, while sharply higher costs pushed inflation pressures to near-record levels. PMI Services was finalized at 51.0, down from 53.4 in March, while PMI Composite eased to 52.2 from 53.0, pointing to softer overall private-sector momentum after a strong start to 2026.

The slowdown was concentrated in the services sector, where business activity growth weakened to an 11-month low amid a softer rise in new orders. According to S&P Global, overseas demand for Japanese services also declined again, adding further pressure to momentum. In contrast, manufacturers reported the fastest increase in output in more than 12 years, partly reflecting front-loading activity linked to disruptions and uncertainty caused by the Middle East war.

At the same time, inflation pressures accelerated sharply across the economy. Input costs rose at the fastest pace in three-and-a-half years as higher energy and commodity prices fed through supply chains. Firms responded by raising selling prices at the steepest pace in nearly two decades of data collection, reinforcing concerns that official inflation could accelerate further in coming months.

Business sentiment also deteriorated noticeably. Companies cited ongoing uncertainty surrounding the Middle East conflict, rising costs, and concerns about weaker customer demand. Optimism for the year ahead fell to its lowest level since the COVID-19 pandemic in August 2020, highlighting growing anxiety that Japan may face a more difficult balance between slowing growth and rising inflation pressures later this year.

Full Japan PMI Services final release here.

Key insights from the week that was.

In an 8-1 vote, the RBA Monetary Policy Board (MPB) delivered its third consecutive rate hike, raising the cash rate by 25bps to its prior peak of 4.35%. The MPB stated that “the conflict in the Middle East has resulted in sharply higher fuel and related commodity prices” and that “this is likely to have second-round effects on prices for goods and services more broadly.” Inflation is now expected “to remain above target for some time”. The MPB are also attune to the risk of “price rises get[ting] built into longer term inflation expectations” in the event of a longer, or more severe, conflict.

In a video update midweek, Chief Economist Luci Ellis noted that Governor Bullock’s press conference was a bit more dovish than we had anticipated, with the last three hikes framed as giving some space for the MPB to assess how the risks evolve. That said, the staff’s forecasts – which are predicated on an assumption of around one-and-a-half more rate hikes – have underlying inflation peaking at 3.8%yr in Q2 2026 and not returning to target until the end of its forecast horizon at June 2028. Inflation risks are firmly skewed towards a higher peak and potentially a slower return to target. We therefore continue to expect another two rate hikes from the RBA in coming months. But, given Governor Bullock’s somewhat more cautious tone, we admit the case for June is now more finely balanced.

Rate hikes already look to be having an effect on the housing market, with national dwelling price growth slowing from a monthly pace of 0.6% in January to 0.2% in April. Performance across the capital cities is mixed, with prices down in Sydney and Melbourne prices but still rising in Brisbane, Adelaide and Perth. While a firming uptrend for dwelling approvals bodes well for supply, cost pressures stemming from the Middle East conflict will likely cause delays and some second thoughts on projects planned but not commenced.

Trends across other parts of the economy are also starting to shift. The ABS’ nominal household spending indicator bounced 1.6% in March on account of higher fuel costs, mirroring our own consumer card activity data. Abstracting from price effects, we expect real consumption to gain 0.6% in Q1; however, outside of fuel and electricity (buoyed by the rebate roll-off), the spending pulse looks faint. This speaks to the more challenging economic outlook taking hold across the nation, particularly in non-mining states where revenue constraints and higher expenses provide less scope for fiscal support.

Before moving offshore, a final note on trade. Unlike the shocks of recent years which benefitted Australia’s net trade position, recent data revealed the nominal goods trade surplus buckled into deficit in March for the first time since 2017. Higher fuel import costs (+37.4%) and volatility in gold played important roles. But the chief culprit behind the surprise was a remarkable surge in data processing machine imports, up $2.9bn or 300% in the month. While noisy and likely a wash for GDP – being offset by inventories or investment – this is clear evidence of the global AI investment drive reaching Australia’s shores.

Offshore, markets have been pre-occupied by developments in the Middle East. At the beginning of the week, President Trump announced Project Freedom, an initiative to provide safe passage through the Strait of Hormuz to ships stuck in the Persian Gulf. As soon as the operation commenced though, skirmishes were seen between the US and Iranian military. UAE energy infrastructure was also targeted.

The US did not retaliate, however, instead referencing an end to the offensive portion of this war. And, within two days, Project Freedom was suspended indefinitely to make way for further intermediated negotiations. Reports suggest progress has been made, albeit without detail. Iran is arguably coming under greater pressure to make a deal, with China’s Foreign Minister emphasising this week the need for a quick end to the conflict and re-opening of the Strait while meeting Iran’s Foreign Minister. The timing of this development is not a surprise considering President Trump and President Xi are due to meet mid-month.

Data releases were uneventful this week. The ISM services index for April eased slightly to 53.6. The new orders index fell 7.1pts to 53.5, slightly below its 10-year pre-COVID average, and the employment indicator rose 4pts but remained weak versus history. The latest JOLTS job openings data and ADP private payrolls release were broadly consistent with balance between labour demand and supply. For the FOMC, this will keep the focus on inflation risks. Guidance given by FOMC members this week was consistent with this view.

A full update on our expectations for the global economy, Australia and New Zealand will be released later today on Westpac IQ in our May Westpac Market Outlook.

• WTI Oil took a significant hit throughout yesterday's session as Axios revealed a more US-Iran deal under construction, and these flows are extending in today's session
• Confirming its price action below $100, sellers are attempting a push towards $90. Will momentum be enough to break the key level?
• Exploring an in-depth Technical Analysis of the commodity

WTI Crude Oil dropped sharply yesterday after Axios reported that the US and Iran are working on a broad peace deal. The strong selling pressure is continuing into today.

After falling 8% yesterday, WTI is down another 5% today. Sellers are clearly getting in control of the market.

For months, prices rose steadily due to geopolitical tensions. Now, the trend has quickly shifted to a clear downward move. Now that prices have dropped below the key $100 level, the pressure is falling, and sellers are pushing toward $90.

The main question is whether this momentum will break that important support, as momentum becomes slightly oversold and Participants will look to confirm the latest narratives.

Peace Deal odds for June 30 – Source: Polymarket

The prediction-market odds US-Iran peace deal by June 30 are currently around 55% after remaining around 30% for a while – A peace deal by May 31 is quite optimistic, but the odds are also rising above 40%.

Traders are selling oil mainly because negotiations are moving toward an agreement to reopen the Strait of Hormuz, as confirmed by a report from Al Arabiya . Allowing normal shipping through this key route is a major reason for the drop in oil prices.

But for oil to fall another $20 and for gas prices to drop for consumers, a formal deal still needs to be signed.

This possible peace will need to be confirmed during the coming weeks of diplomatic talks, which recent statements have hinted at – With the much anticipated Trump-Xi meeting taking place next week, this could be an important date for the Oil Market.

Now, let's take a closer look at the technical analysis for WTI Crude to see if sellers can push prices below the $90 support level.

US Oil Intraday Timeframe Analysis

WTI 4H Chart and Technical Levels

WTI Oil 4H Chart – May 7, 2026. Source: TradingView

WTI has officially formed a decent looking top, with a lower high throughout the past week leading to the ongoing tumble, down 19% since its April 29 top.

Now breaking the key $93 Pivot zone with momentum, establishing below this area will be essential to confirm more downside ahead.

Higher timeframe traders will want to see a break and close below $90 to confirm.

WTI Technical Levels:

Resistance Levels

• Momentum Support now pivot $93 - $95 (breaking)
• $98 to $100 Pivotal Resistance
• $104 next-mini resistance (morning highs!)
• 2022 and Monday highs $117 to $120 (larger channel top)

Support Levels

• $90 Psychological level and past session's lows
• $87 to $90 mini-Support
• $82 Friday 17 lows
• 2025 Highs Key Support $78 to $80

1H Chart and Action Levels

WTI Oil 1H Chart – May 7, 2026. Source: TradingView

Swing trading such erratic Markets remain a fantasy, hence it could always be wiser to capture quick moves and re-assess with the news.

The action is currently oversold on most shorter timeframes, a reason why the selloff has somewhat stalled in the last hour. But Traders should still look at these elements:

• As long as the price action remains below $94.00, bears remain in control.
  • Watch out for minor upside consolidation around here; if the action stays stuck below the level, this adds to odds of a downside break.
• The selloff should accelerate if heavy volume sales occur below $90.
• Breaking back above $95 would hint at more rangebound or rallying action ahead (all the way to $103)

Safe Trades and Keep your eyes on the news!

The short‑term Elliott Wave analysis of Nasdaq Futures (NQ) suggests the Index is close to completing its cycle from the March 31, 2026 low. The rally from that level has developed into a five‑wave impulsive structure, which is typical of a strong upward trend. Wave ((i)) concluded at 24,348.25, followed by a corrective decline in wave ((ii)) that ended at 23,666. The Index then advanced in wave ((iii)) to 27,542.5 before retracing in wave ((iv)), which terminated at 27,012.79.

Wave ((v)) is now unfolding and subdivides into a smaller five‑wave impulse, consistent with Elliott Wave principles. From the end of wave ((iv)), wave (i) advanced to 27,622.75, while wave (ii) corrected to 27,163.25. The Index is expected to push higher through waves (iii), (iv), and (v), completing wave ((v)) of 1 at a larger degree. Once this sequence finishes, a corrective wave 2 should emerge, retracing part of the cycle that began on March 31. This correction would provide consolidation before the Index resumes its upward path. In the near term, as long as price remains above 27,012.79, Nasdaq Futures retain potential for further upside. Traders should anticipate that once the five‑wave sequence of wave ((v)) concludes, a larger degree pullback will likely follow.

Nasdaq Futures (NQ) 60-Minute Elliott Wave Chart

NQ Elliott Wave Video:

https://www.youtube.com/watch?v=9tHHD_W0m4s

Gold advanced 5% in past three sessions and hit two-week high on Thursday, as fresh waves of optimism about potential end of US-Iran war revived risk appetite and deflated prices of crude oil and dollar.

The metal rose further on Thursday, extending Wednesday’s 3% rally (the biggest daily gain since Mar 31, when bulls penetrated and closed within thick daily cloud) rising above $4700 (round-figure) and breaking Fibo 61.8% of $4889/$4500 ($4741).

Daily studies have improved on completion of higher base at $4500 zone and formation of reversal pattern on strong three-day rally, although caution is required as daily MAs are in mixed setup and 14-d momentum is still in negative territory.

Extension and close above $4741 Fibo level and nearby 100DMA ($4775) is needed to further strengthen near-term structure for attack at pivotal barriers at $4800 (round-figure and daily cloud top ($4848).

However, most of focus should remain on developments in geopolitics, as one of key factors that influence the price action nowadays.

Res: 4775; 4800; 4848; 4889
Sup: 4741; 4700; 4649; 4632

USDJPY: ⬆️ Buy

• USDJPY reversed from support zone
• Likely to rise to resistance level 160.00

USDJPY currency pair recently reversed up from the support zone between the support level 155.5, support trendline of the weekly up channel from the start of 2025 and the 61.8% Fibonacci correction of the upward impulse from February.

The upward reversal from this support zone continues the active minor impulse wave iii from the start of this year.

Given the strong daily uptrend, USDJPY currency pair can be expected to rise to the next resistance level 160.00 (which has been reversing the pair from March).

GBPAUD: ⬆️ Buy

• GBPAUD reversed from support zone
• Likely to rise to resistance level 1.8940

GBPAUD currency pair recently reversed from the support zone between the support level 1.875 (which stopped sharp daily downtrend in March) and the lower daily Bollinger Band.

The upward reversal from this support zone stopped the previous minor impulse wave iii of the downward impulse wave 3 from April.

Given the strength of the support level 1.875 and the bullish divergence on the daily Stochastic indicator, GBPAUD currency pair can be expected to rise to the next resistance level 1.8940 (top of earlier waves a and ii).

Ethereum: ⬇️ Sell

• Ethereum reversed from pivotal resistance level 2400.00
• Likely to fall to support level 2200.00.

Ethereum cryptocurrency recently reversed up from the resistance zone between the pivotal resistance level 2400.00 (which has been reversing price from March), upper daily Bollinger Band and the 38.2% Fibonacci correction of the downward impulse from January.

The downward reversal from this resistance zone stopped the previous minor impulse wave 3 from the end of March.

Given the strong daily downtrend and the bearish sentiment seen across the crypto markets today, Ethereum can be expected to fall to the next support level 2200.00.

Markets

Markets today basically do what they got used to during the previous two months: waiting for the next batch of news headlines on the war between the US and Iran. Especially some more concrete news on the opening of the Strait of Hormuz (or the failure to do so) should help to make an estimate/guess on the impact on prices and activity in the short-to-medium term. Whatever the outcome of this process, this estimate will remain a complicated exercise, both for markets and central bankers. Even in case of a political solution/opening of the Strait in the ‘near future’, question will remain to what extent oil and other commodities will return and how quick this will go. Maybe/likely we have already passed the point where some further indirect and second round inflation effects have affected the economic chain anyway. In that scenario, (some) central banks still have to adjust policy, especially if the feared for deceleration in activity would turn out to be more modest then feared. For now this is all no more ‘than hypothetical thinking’. The US and Iran reportedly are considering a short term memorandum that aims to end hostilities and resolve the (mutual) blocking of the Strait of Hormuz. Other key issues including Iran’s nuclear program, will have to be addressed in talks over the next months. Markets yesterday saw enough signs (especially from President Trump’s communication) to anticipate a positive outcome. Inflation and other risk premia declined substantially. This gain is easily maintained, even extended today, as the waiting game continues. Brent oil tries a new attempt to settle below the $100 p/b level (currently $97). EMU swap yields still decline between 4 (2-y) and 2.5 (30-y) bps. Markets have scaled back ECB rate hike expectations. A next step is only fully discounted for July (70% June) and markets see only slightly more than one additional step toward the end of the year. US yields in a similar move also ease between 3 bps (2-y) and 1 bp (30-y). Money markets still hold a highly agnostic view whether the next step of the Fed should be a rate hike or a rate cut. (US) data in the current context mostly have limited market impact. Still preliminary US Q1 Unit Labour Costs eased more than expected (2.3% ann from 4.6%). At the same time, weekly jobless claims remained very low. (200k). The focus now turns to tomorrow’s April US payrolls report. UK markets for now join the broader ‘easing’ rally (yield declines of 3.5-2.5 bps) as investors look out for any potential impact of today’s regional election on the position of PM Starmer (and on fiscal policy). Both US and EMU equity indices mostly hold yesterday’s gains, with limited, mixed moves today. The dollar softens further. Some technical support levels are nearby, but haven’t really been challenged yet (DXY at 97.85 with recent lows near 97.63; EUR/USD at 1.175 with wartime top at 1.1849). Minimal moves intraday in the ERU/GBP cross rate too (0.864)

News & Views

The Norwegian central bank surprised with a 25 bps rate hike to 4.25% today. Although it stated in March that such a move would be appropriate “at one of the forthcoming” meetings, not everyone assumed that it would be already be at the next one this month. Underpinning the decision was high and above-target inflation, rising energy prices and commodity prices in general as well as elevated wage growth all the while the economy operates near capacity with higher energy prices at least partially offsetting its negative economic impact. “High inflation over time can lead firms and households to plan for persistently high inflation. It may then become more difficult to bring inflation down again.” The Norges Bank responded by tightening policy further and stuck to its March guidance that projected rates going as high as 4.5% this year. Norwegian swap yields briefly rallied several bps, going against the broader trend, but failed to hold on to those gains. The NOK does appreciate to EUR/NOK 10.85.

Sweden’s policy rate, by contrast, was kept at 1.75% and is expected to remain there over the coming period. The Riksbank offered a dual risk assessment. The initial energy-related inflation could prompt a broad and persistent rise in other goods and services, warranting a potential monetary tightening. Risks of that happening have increased compared to the March meeting. At the same time, an already sluggish economy is performing weaker than expected and inflation came in well below expectations. Yesterday’s headline number eased to 0.8%, the lowest since December 2020 while the core gauge showed prices stagnating for the first time in three decades. The Riksbank said this means “there is scope to wait until there is a clearer picture of the effects of the war and the supply shocks it entails.” The Swedish krone shrugged at the decision with EUR/SEK trading little changed around 10.83.