BreakEvens Cool off with Metals

Just as inflation searches rose on Google, nominal yields pushed up faster than breakeven yields (inflation proxy), triggering shorts in gold and silver. Ashraf showed this in today's tweet below. He also warned the WhatsApp Broadcast Group late Wednesday on the next round of selloff in XAUUSD and XAGUSD. Recent inflation fears – including from Powell's former colleague – didn't appear to leave any mark on the Fed Chair as he stuck to an extremely dovish script. DOW30 and SPX attempt at holding support at 31240 and 3882 respectively. More levels below from Ashraf.

Profi-taking ensues in indices ahead of a light trading week after Wednesday proved positive for doves and bulls. Up first was the US CPI report and it showed core inflation flat in January compared to a 0.2% rise expected. Headline inflation as also below consensus at 1.4% y/y vs 1.5% expected. The market reaction showed that traders are focusing in on inflation. The dollar dropped across the board on the headlines, sending the commodity currencies to the best levels of the day.

Powell speech took criticisms head on, saying that estimating output gaps is a pitfall and that an Increase in inflation readings in next few months "isn't going to mean very much".  He also left little doubt where he stands on rates and tapering, saying the Fed won't even think about removing stimulus until we see that we're "really through the pandemic, because there's so much uncertainty." The comments initially lifted stocks and weighed on Treasury yields but left little mark on the dollar. What was mildly concerning was that low inflation and dovish comments ultimately left risk trades flat. If a market can't move higher on good news, it's vulnerable.

There was also some tension built up when former NY Fed President Bill Dudley weighed in with a column highlighting all the reasons he's worried.

Lets focus on the aforementioned levels for indices, while XAUUSD tries to hold 1821 and XAGUSD holds 26--the territory of the handle part of the Cup-&-Handle formation.