Solid Goold Trading

Monday’s Edition

With Nick Goold

The war in the Middle East escalated last week after U.S. and Israeli military strikes on Iran. Oil prices jumped above $90 per barrel, the highest level since September 2023. Higher oil prices worried investors because they could increase inflation and slow the global economy. As a result, both U.S. and Japanese stock markets fell as traders reduced risk.

In currency markets, USD/JPY rose to around 158 as the U.S. dollar strengthened. Traders expect higher oil prices to push inflation higher, which could make it harder for the Federal Reserve to cut interest rates soon. Gold moved higher briefly as investors looked for safety, but profit-taking quickly appeared and prices pulled back from recent highs.

Economic data also added pressure to markets. U.S. employment data came in weaker than expected, surprising investors and increasing concerns about the economy. At the same time, European inflation data was higher than expected and could rise further if oil prices stay high. This has increased expectations that the European Central Bank may raise interest rates at its next meeting.

Markets This Week

U.S. Stocks

The Dow Jones came under pressure throughout last week as rising oil prices increased concerns about higher costs for U.S. consumers and companies, which could delay future interest rate cuts. Weaker-than-expected employment data also added to worries about the strength of the U.S. economy. With the war continuing, the outlook remains uncertain and further short-term losses are possible. Although sentiment is very bearish, traders should be cautious about selling weakness after the recent decline. The market is already heavily negative, so patience may be better — waiting for a rebound toward resistance levels before looking for selling opportunities. Resistance levels are at 48,000, 48,500, 49,000, and 50,000. Support is seen at 47,000, 46,500, 46,000, 45,730, and 45,500.

Japanese Stocks

The Nikkei gave back much of its recent gains after the Takaichi election win as investors reacted to the war in Iran. Higher oil prices could hurt Japanese company profits and reduce consumer demand, which has weighed on the market. The Nikkei is still higher this year and the weaker yen has helped exporters, but the yen may not weaken much further due to the risk of currency intervention. The 53,500 level looks important this week. If it breaks, the market could fall quickly as investors take profits. Resistance is seen at 56,000, 57,000, and 58,000, while support is at 53,500円, 53,000円, and 52,000円.

USD/JPY

USD/JPY continued to rise last week, testing the important 158 level several times. This has increased concern among Japanese officials. Finance Minister Satsuki Katayama said authorities are watching the yen closely and are ready to intervene if the currency continues to weaken. Further gains may be difficult because the risk of intervention is rising. However, the overall trend is still upward, so traders may prefer to sell on weakness rather than fight the current trend. Resistance is at 158, 159, and 160, while support is seen at 156.50, 155.50, 155, and 154.

Gold

Gold fell early in the week after failing to break above record highs despite rising tensions in the Middle East. However, the market held strong support at $5,000 and later closed higher, suggesting underlying demand remains strong. As long as gold stays above $5,000, traders may prefer to focus on buying opportunities, especially with geopolitical risks remaining high. Resistance is at $5,250, $5,400, $5,418, $5,500, and $5,600, while support is at $5,000, $4,900, and $4,850.

Crude Oil

After gapping higher at the start of the week, crude oil initially moved lower. However, once it became clear the war was unlikely to end quickly, buyers returned aggressively. Prices surged later in the week, with crude oil rising above $90 on Friday. As the conflict escalated, fears of global supply disruptions increased, which could lead to further buying this week. Volatility is likely to remain very high, creating many short-term trading opportunities. Traders may find better opportunities trading against panic moves rather than trying to predict the direction. Resistance is at $90, $95, $100, $105, and $110, while support is at $80, $75, $70, and $67.5.

Bitcoin

Bitcoin tested higher early in the week as many traders remain long-term believers in the asset. However, worsening risk sentiment later in the week as the Iran war continued caused resistance to hold, and prices closed the week close to unchanged. The market has become range-bound, with the 10-day moving average still pointing lower. Risks remain to the downside if the conflict continues and investors reduce risk positions. Resistance is at $75,000, $80,000, and $85,000, while support is at $65,000, $60,000, and $55,000.

This Week’s Focus

Monday: Japan Current Account, China PPI and CPI
Tuesday: Japan GDP, U.S. Existing Home Sales
Wednesday: China Trade Balance, German CPI, U.S. CPI
Thursday: U.S Trade Balance, Housing Starts and Building Permits
Friday: U.K. GDP, Industrial Production and Trade Balance, U.S. GDP, Core PCE Price Index, Durable Goods and Michigan Consumer Sentiment

The worsening war in Iran will be the main focus for markets this week, as investors worry that higher oil prices could increase inflation and reduce risk appetite for equities. USD/JPY has also continued to rise, increasing the risk of possible currency intervention from the Bank of Japan and potentially pressure from U.S. authorities. Several major economic releases could add to volatility this week, including U.S. CPI on Wednesday and U.S. GDP, inflation, and industrial production data on Friday.