Market Sector Scanner: U.S. Inflation Data, ECB Decision and Yen Volatility

The Japanese yen was the main mover last week. It strengthened as markets expected the Bank of Japan to raise interest rates soon. Japan's Finance Minister also said the government was watching the yen closely. The U.S. dollar weakened after Fed Governor Christopher Waller said interest rates could stay unchanged if inflation continues to fall. Oil prices rose early in the week because of supply concerns. U.S. jobs data was also much stronger than expected, with 162,000 jobs added in August compared with forecasts of 55,000. The dollar rose at first after the report but later moved back down, while gold fell sharply.

Key Events Calendar

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Market Outlook

Forex Market

USD/JPY

Last Week Recap
USD/JPY saw a large reversal last week. Despite high WTI crude oil prices supporting the recent uptrend early in the week, comments from Japanese officials increased expectations that interest rates could rise faster and further than previously expected. At the same time, comments from U.S. officials reduced concerns about inflation, pushing USD/JPY back toward the lows seen after the recent intervention.

Technical Picture
The Bollinger Bands had narrowed during the recent quiet trading. Last week's sharp fall pushed USD/JPY below the lower Bollinger Band, while the 10-day moving average has started to turn lower.

Outlook This Week
As long as USD/JPY stays above 155, a recovery is possible this week. A move back above the lower Bollinger Band could provide a potential buy signal.

GBP/JPY

Last Week Recap
GBP/JPY followed a similar pattern to USD/JPY, falling sharply late in the week to test the lows seen after the recent Japan-U.S. intervention. GBP/USD saw little movement, with the yen driving most of the move.

Technical Picture
GBP/JPY is near the bottom of its recent range and looks oversold in the short term. However, prices have yet to stabilize enough to suggest that support will hold.

Outlook This Week
Markets will focus on U.S. inflation data later this week, while also watching comments from Japanese and U.S. officials about interest rates. A move back above the lower Bollinger Band could provide a short-term buying opportunity.

EUR/USD

Last Week Recap
EUR/USD had a relatively quiet week as traders focused more on movements in the yen. European economic data was slightly weaker than expected. Comments from Fed Governor Waller supported EUR/USD, but stronger-than-expected U.S. employment data later limited the gains.

Technical Picture
The falling 10-day moving average acted as resistance toward the end of the week, while EUR/USD is now trading around the middle of the Bollinger Bands.

Outlook This Week
The downtrend remains in place. With little major news until later in the week, EUR/USD could test lower again.

Equities

U.S. Stock Market

Last Week Recap
Range trading continued as concerns about higher oil prices and high long-term U.S. bond yields were offset by a lower chance of a Fed interest rate hike this month.

Technical Picture
The Nasdaq is trading around the middle of the narrow Bollinger Bands, while the flat 10-day moving average shows there is no clear trend at the moment.

Outlook This Week
Range trading is likely to continue, especially with the U.S. holiday at the start of the week. Medium-term traders may prefer to focus on selling opportunities at higher levels.

Commodities

Gold

Last Week Recap
Gold tested lower last week as higher crude oil prices and stronger-than-expected U.S. employment data put pressure on prices. However, comments from Fed Governor Waller suggesting inflation was easing helped limit the losses.

Technical Picture
Gold remained below the 10-day moving average, which is pointing lower. The Bollinger Bands are also narrowing as the recent trading range becomes smaller.

Outlook This Week
U.S. inflation data will be the main focus this week. Weaker-than-expected inflation could help gold resume its uptrend, but for now, a move lower looks more likely.

Inflation will be the main theme for markets this week. U.S. CPI and PPI data could change expectations for whether the Fed raises rates later this month, while WTI oil will also be closely watched as prices move toward $100. In Europe, the ECB is expected to raise rates, but its view on future inflation may be more important for markets than the decision itself. The yen could also see more volatility if the recent change in longer-term sentiment continues. Trading may begin slowly, however, with U.S. markets closed for Monday's holiday.