Fundamental Analysis & Market Sentiment

I wrote on 31st May that the best trades for the week would be:

1. Long of the S&P 500 Index. This produced a loss of 2.62%.

2. Long of the NASDAQ 100 Index. This produced a loss of 5.24%.

The overall loss of 7.86% last week averaged a per asset loss of 3.93%.

A summary of last week’s most important data in the market:

1. US Average Hourly Earnings – monthly increase of 0.3%, as expected.

2. US Non-Farm Employment Change – much stronger than expected, with 192k net new job while only 75k were forecast. This put some hawkish pressure on the Fed, sending the greenback higher.

3. US ISM Services PMI – slightly better than expected, giving some mild hawkish pressure on the Fed.

4. US ISM Manufacturing PMI – slightly better than expected, giving some mild hawkish pressure on the Fed.

5. Australian GDP – this came in lower than expected, quarterly growth was forecasted to be 0.5% but it was actually 0.3%. This put some dovish pressure on the Aussie and helped it lose value over the week.

6. US Unemployment Rate – this was as expected.

7. Canadian Unemployment Rate – this was notably lower than expected, falling from 6.9% to 6.6%. This is a minor dovish tilt, and it helped the Loonie lose a few pips later during Friday’s trading.

The major event of last week was driven by the previously mentioned data, for a change. Stock markets, notably in the USA and Japan, powered to new record highs driven upwards by optimism over the AI sector. However, when Friday’s US jobs and average earnings data were published, it could be seen that the US economy is far hotter than was expected, leading to more pressure on the Fed to hike interest rates. Paradoxically, the “good news” on the economy was bad news for the stock market, triggering a selloff in the major US tech index of almost 5%.

This will put a big focus on the US CPI (inflation) data due next week, to either confirm this more hawkish outlook on the greenback, or otherwise. However, despite this strong fall in technology stocks, sentiment on AI remains fundamentally bullish, so I think this is likely to be a retracement and not a trend change away from the dominant bull market.

Another major issue is that fact that despite President Trump constantly talking up the imminent prospect of a peace deal with Iran, for more than two months now he has been chasing this deal which somehow never quite arrives. There are increasing military clashes between the USA and Iran near the Strait of Hormuz, not to mention Iran firing ballistic missiles at Kuwait, and Trump is starting to indicate a tighter deadline for an Iranian response. However, Trump has ineptly made it obvious to everyone that he is desperate for a deal and scared to return to a war the American people do not really believe must be won. I expect Iran will continue stringing Trump along and this uncertainty will come to have a worsening effect upon stock markets. Should Trump finally order a return to kinetic war, that will send stocks sharply lower too, and the price of Crude Oil soaring.

The Week Ahead: 8th – 12th June

The coming week’s most important data points, in order of likely importance, are:

1. US CPI (inflation)

2. European Central Bank Policy Meeting (including Main Refinancing Rate), markets expect a rate hike of 0.25%.

3. Bank of Canada Policy Meeting (including Overnight Rate)

4. US PPI

5. UK GDP

Monday is a public holiday in Australia.

Monthly Forecast June 2026

Currency Price Changes and Interest Rates

For the month of June, as there was still no clear trend in the US Dollar, I made no monthly forecast.

Weekly Forecast 7th June 2026

Last week, I forecasted that the NZD/JPY currency cross was likely to fall in value. This was a great call, as it declined over the week by 2.58%.

This week, I forecast directional movement in three currency crosses which has unusually large price movements over the past week:

• Long NZD/JPY

• Short EUR/NZD

• Short GBP/NZD

Volatility increased again last week, with 56% of currency pairs moving by more than 1% in value. Next week’s volatility is likely to remain high as there are a few extremely 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

USD/JPY

The USD/JPY currency pair continued its steady advance last week, with all the daily candlesticks looking bullish, and most of them breaking to new highs with some significant lower wicks on display.

The price is now just short of recent long-term highs, notably the highest daily close in the past several months at ¥160.44. The price failed here at the last attempt to make a long-term bullish breakout. It looks like we are going to see another test.

Dollar strength is being pushed by fundamentals (a hawkish environment for the Fed with a hot US economy putting pressure on for more rate hikes), with the Japanese Yen showing long-term weakness for a similar reason (the extent of Japanese debt making further Bank of Japan rate hikes very difficult).

One question that must be asked is whether the Bank of Japan will intervene in the Forex market as it did the last time the USD/JPY reached this price area. I think they will feel they have to, especially if they see the breakout start to falter and run out of buy orders. The Bank of Japan does not want to see this currency pair weaken much beyond ¥160.00.

This might be a trade you want to pass on, but there are many trend traders who know they can usually find an excuse not to take good trades. For that reason, and for the fundamental reasons behind the trade which I already outlined, I will be going long if we do get a daily (New York) close above ¥160.44.

USD/JPY Daily Price Chart

NASDAQ 100 Index

This tech-based Index spent most of last week advancing to new highs, before selling off a bit on Thursday and then plummeting on Friday.

The rise was caused by general bullishness on the AI sector, and a hope the market has that the US/Iran war is close to a peaceful resolution (which I do not share). What burst the bubble on Friday was the surprisingly strong US jobs data, which will force the Federal Reserve to take more of a hawkish bias on monetary policy, and that is going to be a headwind for the US stock market.

The strong drop on Friday will be enough to make most trend-following Funds and institutions liquidate any long positions in this Index. However, there are reasons to believe the market will bounce back fairly soon, although it is certainly overbought and we do see valuations over stretched. The market remains bullish on AI.

I would not buy this Index just yet, as it is possible that it has further to fall. Best to wait a few more days to see how it behaves.

NASDAQ 100 Index Daily Price Chart

S&P 500 Index

The S&P 500 Index had the same story last week as the NASDAQ 100 Index which I spelt out above. The only notable difference is that the S&P 500, being a broader Index without an exclusive technology focus, rose by less, and then fell by much less.

Trend traders who were long here last week will probably still be long in their trades.

I think the price has a good chance to bounce back, but it would be wise to wait a few days to see what happens, in case the market is spooked and stocks are due a further fall. If a deal is announced between the USA and Iran this week, that could give bulls a strong tailwind. I personally think any deal is unlikely to happen.

S&P 500 Index Daily Price Chart

Gold

Gold continued its medium-term bearish trend last week, gradually declining from Monday to Thursday and then falling strongly along with the US stock market on Friday after much stronger than expected US jobs data was released.

Friday’s close was the lowest daily close made by Gold in 2026. The price is back near the lows made in the immediate aftermath of the wild crash we saw in Gold and Silver back in late January earlier this year.

Note how in April, we saw a bullish retracement to the 50% level of the crash move down, and then a bearish rejection of that price.

I don’t like to go short of Gold as I see it as a risk-on asset that is better bought at highs, but if you are thinking of going short, we certainly see a strong and steady trend with short-term momentum too.

Gold Daily Price Chart

Bitcoin

Bitcoin has been in trouble for months, declining in value while stock markets and other risk-on assets were advancing to new highs.

The bearish situation has become even more pronounced now, with the price reaching a new 18-month low price within the past few days, although there are signs that some support has been found with the doji at the low followed by today’s large and bullish candlestick. This might be a 2b false breakdown, so it could be attracting long-term buyers looking for a discount break.

You need to be a little brave to buy here, only do it if you really believe in Bitcoin as a long-term investment.

If we get a daily close at a new low, below $60,000, that will indicate a nice short trade opportunity on the breakdown. I would like to see that round number cleared before entering a new short trade. Bitcoin still looks like it is in trouble. If it falls further from here, the $50,000 area could be very interesting as a natural buying point. If that fails and the price continues to fall below that, most of the Bitcoin ecosystem could fall into real trouble.

Bitcoin Daily Price Chart

Bottom Line

I see the best trades this week as:

1. Long of the USD/JPY currency pair following a daily close above ¥160.44.

Ready to trade our Forex weekly forecast? Check out our list of the top 10 Forex brokers.

The bottoms in December 2023, September 2024, and April 2025 have triggered a strong surge in USD/JPY toward the 160 to 162 level.

But the rebound from April 2025 is more constructive as it produces a strong consolidation below the 160-162 zone.

This constructive price action near the 160 to 162 level increases the likelihood of upside breakout.

And if the USDJPY produces an upside breakout, it will likely trigger a strong surge in the pair.

To further understand the short term price action in USDJPY, another daily chart shows the red trend line. The trend line lies between the 160 and 162 levels. A break above this line will likely trigger the next surge in USDJPY.

The dollar is being supported by a tougher Fed path

The US dollar is finding support because markets are no longer treating inflation as a temporary disturbance. Recent inflation pressure, stronger energy costs and resilient consumer spending have pushed investors to rethink the Fed’s path, markets now see a 60% chance of a Fed rate hike by January, a major shift from the earlier view that rate cuts would dominate the 2026 policy debate.

U.S. dollar usually benefits when US rate expectations move higher. The move does not necessarily mean the US economy is in a stronger position. It means the Fed may have less room to support growth if inflation remains uncomfortable.

The bigger issue is credibility. Fed officials were heavily criticized after the 2021–22 inflation surge for describing price pressure as transitory and tightening too late. That history now makes policymakers less willing to dismiss another energy-led inflation shock too quickly.

Source: CME Group

Bessent is trying to separate this inflation shock from 2021

Scott Bessent has pushed back against the idea that the current inflation episode will repeat the post-Covid surge. His argument is that the 2021–22 move followed an unusual mix of pandemic stimulus, supply-chain disruption and a major demand imbalance, while today’s pressure is more closely tied to energy and war-related supply stress.

Bessent said he was never on team transitory during Covid but argued that the current energy inflation shock could fade within a few days or a few weeks as prices cool again.

That message is politically important, but markets are not fully accepting it yet. Traders are looking at inflation data, oil prices and Fed communication rather than simply assuming the shock will fade. For the dollar, that means rate expectations remain the stronger driver for now.

The ECB is also being forced into a more hawkish position

The euro side of the story is no longer cleanly dovish either. The ECB is facing renewed pressure from sticky inflation expectations and higher energy prices, with Reuters polling showing that 59 of 70 economists expect the central bank to raise the deposit rate by 25 basis points to 2.25% in June. That is a clear shift from the April poll, when only just over half expected a June hike.

This gives the euro some support. If the ECB is also forced to tighten, the rate gap between the US and euro zone may not widen as aggressively as it would if only the Fed turned hawkish.

But the ECB’s position is more fragile. Europe is more exposed to energy shocks, and growth remains weaker. That means the ECB may raise rates to defend inflation credibility, not because the economy can easily absorb tighter conditions.

That is the key difference between the dollar and the euro right now. The Fed is dealing with inflation alongside a still-resilient economy. The ECB is dealing with inflation inside a weaker growth environment.

EUR/USD is now trading a two-sided inflation shock

For EUR/USD, this creates a more balanced but still difficult setup. A hawkish Fed supports the dollar. A hawkish ECB supports the euro. But the quality of the support is not the same.

The dollar’s support comes from stronger US rate repricing and the idea that the Fed may have to keep policy restrictive for longer. The euro’s support comes from the ECB being pushed into action, but that action also raises the risk of weaker euro-zone growth.

EUR/USD is no longer only a story about US strength or European weakness. It is now a story about which central bank has the harder inflation problem, and which economy can tolerate tighter policy for longer.

Source: Trading View