Last week, the markets continued where they had left off. More Dollar selling, more risk-on and a lot more bond buying! Yields are breaking down from more critical technical levels, prompting continuous short covering.

The US Dollar tried to find its footing but couldn’t print a positive week. US Core PCE came in line, and GDP was revised higher, but this didn’t lift the greenback. Last week, the DXY index fell 0.2% to close at 103.193.

The Euro had a lousy week as CPI printed 2.4% YoY (expectations were for 2.7%) and now looks like it will hit the ECB’s 2% target very soon. ECB members are also floating rate cuts around, adding downward pressure to the single currency.

The Pound did well without significant economic data releases and continued its recent good form. EURGBP fell 1.4% to close at 0.8553, and GBPUSD closed above 1.27.

Commodity currencies continue on their recent rampage, posting a third big week in a row. The NOK and CAD gained just under 1%, the AUD rallied 1.4% and the NZD soared over 2% higher vs. the Dollar. Elsewhere in FX, the CHF rallied 1.4%, the JPY gained 1.8%, and the MXN underperformed, posting a 0.4% loss.

Oil crept lower again – the WTI fell 1.1% to close at $74.34.

Precious metals were the week’s stars, with yet another stellar performance. Gold rallied 3.4% to $2,071, and Silver rallied 4.7% to close at $25.47. We are now at hugely important resistance levels: Gold is practically at its ATHs, and Silver is at the resistance trendline of a 3-year descending channel. Sentiment is very positive for metals and almost everyone is talking about the long-awaited breakout higher. This should make precious metals bulls cautious, as a pullback is likely to come first, before the next thrust higher.

Equities proved what we said last week: “The pain trade is higher for stocks”. Falling yields helped risk-on sentiment prevail, and most major equity indices moved higher. The S&P500 index gained 0.8% to 4595 points, and the DAX rallied 2.3% to close at 16400 points and now lies very close to its ATHs.

Bonds are unstoppable at the moment, and they posted another big positive week. CTAs are likely covering their shorts now so that we could see an end to this rally – at least in the short term. Last week the 10y UST yield fell 27bps to close at 4.20%, and the 10y Bund rallied 2.2% to close at 133.287 points.

Finally, crypto-currencies aligned with risk assets, gaining yet more ground. At the time of writing, Bitcoin and Ethereum are around 4% higher, at $39,500 and $2,165 respectively.

The Week Ahead:

Yields are going to be firmly in the spotlight again next week, as will precious metals. Can this run continue, or will we see a long-awaited pullback as significant resistance is reached?

Data-wise we have interest rate decisions from the RBA and the BoC, but no change is expected. We also have inflation prints from Switzerland, Japan and Mexico. Finally, we close the week with the all-important US Nonfarm Payrolls.

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