Risk-Off Sentiment Builds as Crude Oil Prices Rise, Fed Hikes Loom
Risk-off sentiment is building across markets as concerns over higher crude oil prices, more hawkish Federal Reserve and Bank of Japan outlooks, and growing AI security risks increase. The Federal Reserve and Bank of Japan are expected to raise interest rates by 25 basis points this week, with market-implied probabilities above 80%. However, the rate decisions are largely priced in, so the guidance from these meetings may have a greater influence on the broader market direction.
The growing AI security risks come as Anthropic reported that AI-assisted, multi-agent workflows have been used in cyber operations. This could weigh on AI-related equities and the Nasdaq through increased regulatory, valuation, and concentration risks. The CNN Fear & Greed Index also suggests a leaning towards caution, which may stabilize dollar pairs with a positive bias.
The USD/JPY price outlook is bearish in the short term but bullish long-term. It has been respecting Fibonacci retracement levels since breaking below the April 2025-July 2026 uptrend. The recent drop below 154.80, which aligns with the 38.2% retracement level, has now held above only a few points above the 50% retracement and the next projected support zone near 152.