Fundamental Analysis & Market Sentiment
I wrote on 26th April that the best trades for the week would be:
Long of the USD/JPY currency pair following a daily (New York) close above ¥160. This set up on Thursday, but thanks to the Bank of Japan’s intervention in the market on Friday, it produced a loss of 2.13%.
Long of Brent Crude Futures if we get a daily close above $112.50. This did not set up.
Long of the S&P 500 Index following a daily close above 7,165. This set up on Monday and produced a gain of 0.78%.
Long of the NASDAQ 100 Index following a daily close above 27,303. This set up on Monday and produced a gain of 1.48%.
The overall gain of 0.13% last week averaged as a per asset gain of 0.03%.
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A summary of last week’s most important data in the market:
US Federal Funds Rate and FOMC Statement – rates held as expected, but the large number of hawkish dissenting votes surprised and produced a minor hawkish tilt.
US Core PCE Price Index – exactly as expected.
US Advance GDP – slightly lower than expected, with annualized growth seen at 2.0% not the 2.2% which was expected, giving a small dovish tilt.
US Employment Cost Index – a fraction higher than expected, which will be a tiny hawkish tilt on Fed pressures.
Bank of Japan Policy Rate, Monetary Policy Report, and Outlook Report. This was like the Fed – the Bank voted to keep rates on hold, but with a surprisingly large dissent of 3 votes for an immediate hike. This is a minor hawkish tilt.
European Central Bank Main Refinancing Rate and Monetary Policy Statement – left rates on hold as expected, but slightly more hawkish on the prospect of stagflation.
Bank of England Official Bank Rate & Votes, Monetary Policy Summary & Report
Bank of Canada Overnight Rate, Policy Report, and Rate Statement - left rates on hold as expected, but slightly more hawkish on the prospect of inflation.
Australia CPI (inflation) – came in lower than expected, with an annualized rate of 4.6% while 4.8% was expected.
Canadian GDP – this was as expected.
For yet another week, last week’s economic data releases were much less influential upon the markets than the ongoing US/Iran negotiations/standoff. Perception is moving in the direction of a stalemate, with Iran making proposal that are miles off the USA’s demands, and President Trump complaining aloud that Iran’s leadership is so divided it can’t come to a unified position, and then occasionally saying he doesn’t care about a deal and might resume bombing anyway.
The result of this is that energies are continuing to edge higher, and prediction markets are now not seeing a peace agreement as likely by the end of June, or Iran handing over enriched uranium to the USA by the end of 2026.
President Trump has a non-kinetic weapon which he may be trusting in – the US naval blockade of Iran, which is estimated to be costing Iran about $400 - $500 million per day. It may still be that the USA will launch fresh attacks – US military tankers have been observed building up at Israeli airports, just as was so before the initial hostilities erupted at the end of February. However, such attacks are most likely to happen at the weekend, so once markets reopen for the week it is probably off the table until at least the next weekend.
Although there were several major central bank policy meetings last week, they all said essentially the same thing, and nothing was truly unexpected, so there was a relatively low level of directional volatility in the markets last week. The major central bank event last week was the Bank of Japan’s public intervention last Friday to shore up the Japanese Yen after the benchmark USD/JPY currency pair traded well above ¥160. The large-scale Yen purchase sent the Yen from 2% to 3% higher against most other currencies and was the Yen’s largest daily advance in over three years. The Yen gave up some of its gains by the end of the day.
The Week Ahead: 4th – 8th May
The outcome of negotiations and the ceasefire concerning the Middle East war is likely to remain very influential on the market over the coming week, with only a few scheduled high-impact items, including an Australian central bank policy meeting, which could have a big impact.
The coming week’s most important data points, in order of likely importance, are:
Reserve Bank of Australia Policy Meeting: Cash Rate, Rate and Monetary Policy Statements
US JOLTS Job Openings
US ISM Services PMI
New Zealand Unemployment Rate
Monday is a public holiday in China, Japan, and the UK.
Tuesday is a public holiday in Japan and China.
Friday is a public holiday in Japan.
Monthly Forecast May 2026
Currency Price Changes and Interest Rates
For the month of April, I forecasted that the USD/JPY currency pair would rise in value. The final performance of the forecast was not profitable:
For the month of May, as there is no clear trend in the US Dollar, I make no monthly forecast.
Weekly Forecast 4th May 2026
Last week, I made no weekly forecasts as there were no unusual movements in the Forex market last week.
Volatility increased last week, with only 19% of currency pairs moving by more than 1% in value. Next week’s volatility is likely to be the same or even lower, as there are few high-impact events scheduled, although a sudden and surprising development in the USA / Iran war could move the market dramatically at any time. Having said that, a drawn-out blockade process still looks more likely than a return to kinetic war.
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Technical Analysis
Key Support/Resistance Levels for Popular Pairs
Key Support and Resistance Levels
US Dollar Index
The US Dollar printed an indecisive near-doji candlestick last week. We have a mixed long-term trend, with the 3-month trend bullish and the 6-month trend bearish.
The greenback is clearly within a long-term consolidation phase, so we cannot really expect much of a trend in the US Dollar here. I don’t see any clear direction for the greenback based on this chart.
I think the greenback will be more driven by the progression of the USA / Iran standoff– if war breaks out again, it will likely boost the Dollar, not so much as a haven but more as an effect of the inflationary shock of the rising energy prices. If we start to see progress on a real long-term deal, conversely, it will probably be bearish for the US Dollar.
Markets have become less optimistic about a deal, but so far, this is not boosting the USD. I think it will be wide to disregard the USD in trading this week – just look at the other side of the trade.
US Dollar Index Weekly Price Chart
USD/JPY
The USD/JPY currency pair was breaking higher to reach a new long-term high price well above ¥160 when the Bank of Japan intervened on Friday. The BoJ does not want to see the Yen get any weaker, but any central bank trying to prop up their currency against the trend faces a difficult task if the market is strongly set in the opposite direction.
The Bank’s intervention ended and the rest of the day saw the Yen give up some of its gains against other currencies, but notably, not so much against the USD here.
Note how the ascending trend line drawn within the price chart below held the post-intervention low price, practically to the pip.
Despite the minor rebound and the holding trend line, I do not see the price bouncing back quicky. I think a consolidation period in this currency pair will be quite likely over the next few weeks.
USD/JPY Weekly Price Chart
S&P 500 Index
The S&P 500 Index rose again last week, as its extraordinary turnaround from its lows in late March continues. The price rose last week to trade at a new all-time high price, although it gave up some of its gains on Friday as markets turned more pessimistic about the prospect of a peace deal between the USA and Iran.
The price is rising in blue sky, so there is little reason not to be bullish, especially after a calendar month of a double-digit gain, although April wasn’t even in the top 20 months of historic gains here. It’s a great idea to be long of the US stock market when it is making new highs, but traders might want to wait for a higher daily close to show the market has moved on from Friday’s losses.
I think it will be wise to wait on the sidelines and see what the market does on Monday. If we get a daily close at the end of Monday that is higher than Friday’s closing price, a new long trade entry will look extremely tempting.
S&P 500 Index Weekly Price Chart
NASDAQ 100 Index
Everything I wrote above about the S&P 500 Index applies equally to the NASDAQ 100 Index, but the bullishness here is even stronger, with tech stocks leading the US stock market higher. As the NASDAQ 100 averages a higher return than the S&P 500 Index so if you want to be long there, you should seriously consider being long here too. It might be wise to wait for a higher daily close before entering a new long trade though.
NASDAQ 100 Index Weekly Price Chart
Brent Crude Oil Futures
Brent Crude Oil rose slightly last week, with the continued closure of the Strait of Hormuz by Iran and blockade of Iran by the USA driving the price higher.
This continuation of the closure situation should continue to push prices higher, and we might see a break into new highs. The price is not far from recent highs now. I am not sure that the price will fall a great deal further even if there is a peace deal, it may take a while to do that, but it should continue to trade lower in that scenario.
If the USA began bombing Iran again, following the failure of talks, we will likely see a push into new highs.
I think as the Iran situation continues to look length and messy, with a clean resolution increasingly unlikely, long trades in energy start to look more attractive, although the Trump administration will do what it can to lower prices when they reach new highs.
I will go long here if we get a daily (New York) close above $112.50 per barrel.
If you do go long, Brent will likely be the better vehicle than WTI, as it is more exposed to events in the Strait of Hormuz.
Brent Crude Oil Futures Daily Price Chart
Gasoline Futures
RBOB Gasoline Futures rose quite strongly last week, with the continued closure of the Strait of Hormuz by Iran driving the price higher.
Gasoline tends to lead the price of crude oil higher in this kind of crisis, and this is where we are now.
For the reasons I outlined above in my Brent Crude Oil analysis, Gasoline looks like an interesting trade on the long side. A quick resolution of the Iran / USA crisis looks decreasingly likely, so the crisis will probably run for a while longer and continue to pressure the price of Gasoline to the upside.
Gasoline futures are too large for most retail traders, so using a CFD or an ETF like UGA could be a more accessible way to get exposure.
Gasoline Futures Weekly Price Chart
Bottom Line
I see the best trades this week as:
Long of Brent Crude Futures (or a suitable ETF) if we get a daily close above $112.50. This is extremely unlikely to set up unless there is a surprise resumption of the war.
Long of Gasoline Futures (or UGA ETF).
Long of the S&P 500 Index following a daily close above 7,230.12.
Long of the NASDAQ 500 Index following a daily close above 27,685.40.
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