Fundamental Analysis & Market Sentiment
I wrote on 24th May that the best trades for the week would be:
Long of the AUD/USD currency pair. This produced a win of 0.77%.
Long of the S&P 500 Index. This produced a win of 1.40%.
Long of the NASDAQ 100 Index. This produced a win of 2.95%.
The overall win of 0.52% last week averaged a per asset gain of 1.71%.
A summary of last week’s most important data in the market:
US Core PCE Price Index – lower than expected, at 0.2%, which confirmed the trend of inflation falling faster than expected in major economies. This has been positive for risk sentiment and bearish for the US dollar.
US Preliminary GDP – lower than expected, showing an annualized rate of only 1.6%, which is also bearish for the US Dollar.
Australian CPI (inflation) - lower than expected, showing an annualized rate of only 4.2%, confirming a global trend of falling inflation.
Reserve Bank of New Zealand Policy Meeting – no change to the Official Cash Rate was made, the meeting has been understood as very slightly dovish for the NZD, but the NZD is still positioned more hawkishly than the AUD.
Canadian GDP – lower than expected, showing a slight contraction of 0.1% month-on-month.
Last week’s story was of improving risk-on sentiment, both due to signs that inflation is falling and falling crude oil prices (which are linked), and the popular idea promoted by President Trump that a “good deal” is close to conclusion between the USA and Iran. The first factor is correct and verifiable, with inflation data in the USA and Australia undershooting expectations and the price of WTI Crude Oil dropping by approximately 5% over the week. The second idea, in my opinion, is an illusion which is probably leading to mispricing of risk assets.
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The Iranian regime will prefer to lose billions of Dollars, millions of its citizens, and to watch its cities burn rather than meet President Trump’s stated red lines. This is why President Trump has had to change his tune over the week, from saying a deal was all but agreed to saying that if a deal is agreed , it will have to meet his red lines, the most important of which are extracting Iran’s enriched uranium and making sure that Iran gives up the ability to develop nuclear weapons in the future.
I believe that the choice that will shortly become painfully obvious to even President Trump will be between accepting a bad deal and moving on or accepting that anything worth getting from Iran will have to be obtained by force. If President Trump does return to war, risk sentiment will take a bit hit and we can expect equities to drop and crude oil to rise, and if this is sustained, it will fuel inflation again.
According to all reports, what has been under discussion is little more than a reopening of the Strait of Hormuz while the parties negotiate for 60 days. If this is agreed, it will help improve risk sentiment and move markets, but President Trump will end up with little more than Obama’s JCPOA.
The Week Ahead: 1st – 5th June
The coming week’s most important data points, in order of likely importance, are:
US Average Hourly Earnings
US Non-Farm Employment Change
US ISM Services PMI
US ISM Manufacturing PMI
Australian GDP
ADP Non-Farm Employment Change
US Unemployment Rate
Canadian Unemployment Rate
Monday is a public holiday in New Zealand and Tuesday is a public holiday in Italy.
Monthly Forecast June 2026
Currency Price Changes and Interest Rates
For the month of June, as there is still no clear trend in the US Dollar, I made no monthly forecast.
Weekly Forecast 31st May 2026
This week, I forecast that the NZD/JPY currency cross is likely to fall in value.
Volatility increased last week, with 26% of currency pairs moving by more than 1% in value. Next week’s volatility is likely to remain high as there are several high impact data items due, and it is also possible there could be a dramatic development between the USA and Iran.
You can trade these forecasts in a real or demo Forex brokerage account.
Technical Analysis
Key Support/Resistance Levels for Popular Pairs
Key Support and Resistance Levels
US Dollar Index
The US Dollar printed a relatively small candlestick last week, which was both a bearish pin and an outside engulfing bar. This suggests bearishness, but as the price has been ranging for over one year now while locked in a consolidation, and there is clearly no valid long-term trend, I do not want to make any predictions about the US Dollar.
The main driver of the greenback today is progress towards a peace deal between the USA and Iran, and as that continues to vacillate from day to day, there is nothing to change the ranging price behaviour. If the situation plunges back into war or a peace deal is agreed, that could change. War will likely send the Dollar higher on inflation and safe haven concerns, while a peace deal will likely send the Dollar lower on the opposite logic.
Meanwhile, I think it makes sense to base trades over the coming week on other factors and to just ignore the US Dollar as a factor even if you are trading something priced in Dollars.
US Dollar Index Weekly Price Chart
NZD/USD
The NZD/USD currency pair printed a large candlestick last week, closing near the high of its range and the big round number at $0.6000. The price made a high which was almost a 3-month high price.
The strong New Zealand Dollar was the major story in the Forex market last week, outperforming the typical “risk-on” currency which is the Australian Dollar – of course, both are usually highly positively correlated.
The outperformance and strong performance are likely because the RBNZ’s monetary policy is positioned more hawkishly than the RBA’s. This, coupled with the rise in risk sentiment seen last week, is what made the New Zealand Dollar the top gainer of the week.
I am sceptical that there will be a peace deal between the USA and Iran, and so I see it as quite likely that risk sentiment will deteriorate next week as to me Iran and USA seem positioned for a clash. The Kiwi is probably a bit over-extended and is very sensitive to risk, so I see a potential short trade here as a possible trade set up, maybe following a rejection of the big round number at $0.6000 which has acted as resistance before.
Short NZD/JPY could be an even better trade, although I am unsure about a trade entry point for that.
NZD/USD Weekly Price Chart
S&P 500 Index
The S&P 500 Index rose firmly last week, gapping higher and closing well above the significant round number at 7,500 at a new record.
It was driven higher by continuing bullishness on AI and tech giant stocks, by continuing optimism over a deal between the USA and Iran to end the war, and by lower inflation data and the firm fall in the price of crude oil.
I think unless something goes seriously awry with the emerging understanding between the USA and Iran this week, this Index will rise for another consecutive week.
S&P 500 Index Weekly Price Chart
NASDAQ 100 Index
Everything I wrote above about the S&P 500 Index applies even more strongly to the NASDAQ 100 Index, which is doing even better as it contains a stronger concentration of booming AI-driven companies. The bullish momentum is a little stronger here, and the NASDAQ 100 has a notably higher average annual return than the S&P 500 Index.
I see this Index as a buy.
NASDAQ 100 Index Weekly Price Chart
Brent Crude Oil Futures
Brent Crude Oil futures, like WTI futures, fell over the week, mostly due to increasing expectations that the USA and Iran will conclude a deal that would end the blockade of the Strait of Hormuz by both parties.
These expectations seem to be justified now, with the major item in the interim deal expected to be the reopening of the Strait. If concluded, this is very likely to produce lower prices here.
Of course, the deal could fall apart. I believe it will, eventually, unless President Trump betrays his red lines.
The danger for bears here is that the price is clearly at its conflict lows, so may not have much room to fall further until a deal is fully formalized. I think that today, that looks less likely to happen soon than it was last weekend.
Brent Crude Oil Futures Weekly Price Chart
Bottom Line
I see the best trades this week as:
Long of the S&P 500 Index.
Long of the NASDAQ 100 Index.
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