The past week was another lively one, with the US Dollar and yields continuing their move higher. This brought pressure to the equities markets as broad risk-off sentiment prevailed.

The US Dollar Index moved higher for yet another week, but it has now found resistance at around the 103.50 level we indicated last week. The FOMC minutes showed that there is still some hawkishness among Fed members, which continues to strengthen the greenback. Last week the DXY index was 0.6% to close at 103.432.

The Euro had another mixed week as economic data sprung no surprises (CPI came in line at 5.3%).

The Pound performed well as UK wage growth rose faster than anticipated. Markets now think that the BoE has more to do on the hiking front, and Sterling rallied against most majors.

Commodity currencies had a third bad week in a row as the Dollar wrecking ball continued its move higher. The CAD fell 0.8%, the AUD and NZD fell around 1% and the NOK brought up the rear with a 2.1% drop. Elsewhere in FX, the JPY, and CHF all registered small losses against the greenback.

Oil finally broke its streak of 7 positive weeks in a row, posting a weekly loss as risk sold off. The WTI fell 2% to close at $81.36, but the market still remains in a clear uptrend.

Precious metals should have performed worse given the Dollar rally and equities sell-off, but they actually fared relatively well. Gold fell 1.3% to close at $1,889 and is now sitting on very important support. Last week Silver managed to gain 0.3%, closing at $22.75.

Equities are finally starting to feel the pressure due to rising yields – it was a matter of time. The S&P500 index broke below support and closed the week 2.3% lower at 4366 points, while the DAX fell 1.7% to 15578.

Bonds saw yet more selling and bears remain in control. However, the market is now getting very bearish. With inflation subsiding globally and central banks very close to ending their tightening cycles, it’s becoming more likely that we have seen the top in yields. Last week the 10y UST yield rose 9bps to 4.25% and the 10y Bund was broadly flat at 131.38.

Finally, crypto-currencies finally broke lower after weeks of consolidation. Their correlation with risk naturally leads them lower, as they continue to underperform equities. At the time of writing, Bitcoin and Ethereum are both around 10% lower at $26,000 and $1,660 respectively.

The Week Ahead:

The week ahead should be very important as yields are on the verge of a big breakout higher. If yields continue their march higher then equities should remain under pressure. The US Dollar will also be in focus, as it’s reached resistance and could be running out of steam.

Data-wise we have a number of PMIs from across the globe and housing data from the US.

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