Last week saw a broad continuation of the previous week’s moves, with risky assets rallying further (probably due to short cover) and yields trying to find support.

The US dollar index made up some of last week’s losses, mainly because Jerome Powell was again more hawkish than expected. Last week, the DXY index rose 0.7% and closed at 105.801.

The Euro performed relatively well, although economic data for the eurozone remain on the weak side. The EURUSD fell 0.4% and closed below 1.07 again, while the EURGBP rose almost 1% to 0.8737.

The Pound continues to be hit by weak economic data from the UK, and next week’s earnings and employment figures are very important if Sterling is to find any strength.

Commodity currencies had a poor week, although risk-on persisted; oil’s sharp fall was probably the main driver of this move. Last week, the CAD and NOK fell about 1%, while the AUD and NZD lost about 2% against the dollar. Elsewhere in FX, CHF posted marginal losses and JPY dropped 1.4%.

Oil experienced a second bad week in a row, with WTI falling another 4.4% and closing at $77.31. Precious metals performed worse than the USD.

Precious metals underperformed the previous week and showed similar underperformance last week. While interest rates and the dollar rose together and commodities fell, precious metals suffered below. Gold fell 2.7% to $1,938 and silver dropped more than 4% to $22.25.

Equities rose for the second week, mainly due to short covering. This broad rally could continue until positioning and sentiment balance out. Last week, both the S&P500 and the DAX rose about 1% to 4407 and 15324, respectively. Bonds found resistance after the previous week.

Bonds found resistance after last week’s monster rally and fell marginally. Last week, the 10-y UST yield rose 7bps to 4.63% and the 10-y Bund fell 0.5% to 129.701.

Finally, cryptocurrencies are finding further strength. Their correlation with risk remains and they still seem to outperform other risky assets. At the time of writing, Bitcoin is more than 6% higher at $37k and Ethereum is flying 12% higher at $2,050.

The week ahead:

The week ahead is dominated by the US CPI print, which is likely to dictate which way risk assets, interest rates and the dollar move in the near term. We also get GDP and CPI prints from the eurozone, and earnings and unemployment figures from the UK.

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