US 500, USDJPY, GBPUSD

Fed interest rate decision and Iran-Israel conflict --> US 500

The Federal Reserve is widely expected to hold interest rates steady at its upcoming policy meeting on Wednesday. Despite ongoing pressure from President Trump to cut rates, the Fed is maintaining a cautious stance due to concerns that recent tariffs could reignite inflation, which has only recently approached the Fed’s 2% target. The attention would be on the press conference later. 

Over the weekend, tensions between Iran and Israel escalated into a deadly military confrontation, with Israel launching targeted airstrikes deep into Iranian territory, including Tehran, killing over 220 people, including senior IRGC officials like intelligence chief Mohammed Kazemi. In retaliation, Iran fired missiles at Israeli cities such as Haifa and Rishon Lezion, resulting in at least 13 civilian deaths. Israel also claimed to have struck critical infrastructure, including an oil depot and nuclear facilities, prompting the closure of its airspace and civilian alerts. The United States declined to join the conflict, while the G7 summit is expected to address the crisis. This intensifying conflict is adding a layer of uncertainty to global markets, particularly through its impact on oil prices and investor sentiment. While the Federal Reserve is expected to hold interest rates steady this week, it is closely monitoring geopolitical developments. A prolonged conflict could influence inflation expectations and future policy decisions.

The US 500 cash index is trying to regain some ground after the strong selling interest on Friday, with resistance coming from 6,070 and the all-time high of 6,147. A rally higher could open the way for the 161.8% Fibonacci retracement level of the downward wave from 6,147 to 4,800 at 7,000 but the round numbers below it such as 6,200 and 6,300 could come in focus too. However, a slide below the 200-day simple moving average (SMA) at 5,800 may open the way for bearish corrections 

BoJ policy meeting --> USDJPY 

The Bank of Japan (BoJ) is set to announce its policy decision on Tuesday amid a complex economic backdrop. Markets widely expect the BoJ to keep interest rates unchanged, as it navigates a delicate balance between persistent inflation and slowing economic growth. Core inflation, driven by rising food and energy prices, remains above the BoJ’s 2% target, with April’s rate at 3.5% year-over-year. However, Japan’s economy contracted by 0.2% in Q1 2025, and real wages have declined, raising concerns about consumer spending and overall growth.

While the BoJ is unlikely to raise rates this week, any hawkish signals, such as hints at future tightening, could strengthen the yen. Governor Ueda has indicated a willingness to act if economic data improves, so markets will closely watch the policy statement and press conference for forward guidance 

USDJPY has been moving sideways over the last month, failing to extend its upside movement above the long-term downtrend line and the 145.50 region. Any bullish surprises may send investors toward the 146.30 resistance and the 38.2% Fibonacci od the down leg 158.86-139.85 at 147.17 before testing the 148.65 barrier and the 200-day SMA, which overlaps with the 50.0% Fibonacci of 149.40. 

BoE interest rate decision --> GBPUSD 

The Bank of England (BoE) is expected to hold interest rates steady at 4.25% during its upcoming policy meeting on Thursday. This follows a quarter-point cut in May, and markets currently anticipate the next rate cut to come in September, aligning with the BoE’s recent pattern of quarterly adjustments .

Despite signs of economic weakness—such as a contraction in April and slowing wage growth, inflation remains elevated, with April’s CPI at 3.4%, well above the BoE’s 2% target. The May inflation data, due just a day before the meeting, is expected to show a similar rate, reinforcing the case for caution. The BoE is expected to maintain a gradual and cautious stance on rate changes due to persistent inflation and external risks like Middle East tensions, trade disruptions, and a stronger pound.

GBPUSD is retreating from the three-and-a-half-year high of 1.3630, achieved last week, remaining within the upper section of the Bollinger band. More increases could lead investors toward the January 2022 top at 1.3750. However, a slide beneath the support area of 1.3415-1.3460 may drive the bears toward the 50-day SMA at 1.3345 and the long-term uptrend line at 1.3300.