Market Sector Scanner: Fed Rate-Hike Risk and BOJ Intervention Risk in Focus
Markets reacted to a more hawkish Fed after Kevin Warsh’s first FOMC meeting as Chair increased expectations of faster U.S. rate hikes. USD/JPY rose above 161 even after the BoJ raised rates, while gold fell and the Nasdaq lost momentum. This week, traders will watch U.S. Core PCE, PMI data, Tokyo CPI, and the risk of yen-buying intervention.
The week’s main focus was Kevin Warsh’s first FOMC meeting as Fed Chair, where his comments were viewed as more hawkish than expected and raised the risk of faster rate hikes. This pushed USD/JPY above 161 to its highest weekly close since 1986 and weighed on U.S. equities. Earlier in the week, markets had started on a positive note after a U.S.-Iran framework deal eased fears around the Strait of Hormuz, sending oil sharply lower and supporting risk sentiment. In Japan, the BoJ raised rates to 1% as expected, but the yen saw little support, while the Nikkei jumped nearly 7%.
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Forex Market
USD/JPY
Last Week Recap
Expectations of higher official Japanese interest rates had little impact, as yen selling pressure remained strong. Meanwhile, the FOMC statement and hawkish comments increased expectations of further U.S. rate hikes, triggering aggressive USD buying. As a result, USD/JPY surged and closed the week above previous intervention levels.
Technical Picture
USD/JPY has moved above the upper Bollinger Band, showing strong bullish momentum. The 10-day moving average continues to act as support, helping to push the market higher.
Outlook This Week
The market looks overbought in the short term, while the risk of Bank of Japan intervention remains. Because of this, short-term traders may find better selling opportunities at the start of the week rather than chasing the move higher.
GBP/JPY
Last Week Recap
GBP/JPY initially moved higher as lower oil prices supported risk sentiment and helped weaken the yen. However, aggressive USD buying after the FOMC meeting pressured the pound, while concerns about potential UK political disruption added further weakness. As a result, GBP/JPY reversed lower and closed the week in negative territory.
Technical Picture
After finding resistance at the upper Bollinger Band early in the week, GBP/JPY moved back toward the lower Bollinger Band by the end of the week. With the 10-day moving average now pointing sideways, range-trading conditions appear to be developing.
Outlook This Week
The potential for further UK political disruption, combined with limited scope for near-term yen weakness, suggests that selling into strength may be the preferred strategy this week.
EUR/USD
Last Week Recap
EUR/USD fell again last week. Better-than-expected eurozone economic data and higher inflation figures helped the pair recover slightly at the start of the week. However, comments from the new FOMC chairman increased expectations of higher U.S. interest rates, triggering heavy selling in EUR/USD.
Technical Picture
The 10-day moving average remains bearish, showing that downside pressure is still in place. However, the lower Bollinger Band is currently providing short-term support.
Outlook This Week
With the interest rate gap between the eurozone and the U.S. likely to widen, EUR/USD may remain under pressure. Selling into strength looks like the preferred strategy this week.
Equities
U.S. Stock Market
Last Week Recap
The Nasdaq started the week strongly as progress in negotiations to end the war in Iran helped push oil prices lower and improve risk sentiment. However, resistance held near recent highs after the FOMC meeting raised expectations of higher U.S. interest rates later this year.
Technical Picture
The market remains in a slight uptrend, with prices trading around the middle of the Bollinger Bands. This suggests momentum has slowed, but the broader trend has not yet turned clearly bearish.
Outlook This Week
Range trading with a slight downside bias looks like the most likely scenario this week. The market may need fresh positive news to break above recent highs and restart stronger bullish momentum.
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Commodities
Gold
Last Week Recap
Gold moved higher at the start of the week as falling WTI crude oil prices weakened the U.S. dollar and improved market sentiment. However, expectations of higher U.S. interest rates following the FOMC meeting saw sellers return, pushing gold lower into the weekly close.
Technical Picture
The upper Bollinger Band acted as resistance in the middle of the week, while the close back below the 10-day moving average confirmed that the short-term downtrend remains in place.
Outlook This Week
With markets expecting higher U.S. interest rates and technical indicators pointing lower, focusing on selling opportunities looks like the preferred strategy this week.
Volatility may stay high as markets adjust to the risk of higher interest rates for longer. While lower WTI has eased some inflation concerns, a stronger U.S. dollar is weighing on gold and increasing the chance of yen-buying intervention.
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