1890?

The Fed spent the past week pushing back on inflationary concerns and rate hike expectations but a sizzling CPI report might have flipped the script. The US dollar broke out on a number of fronts afterwards. A US holiday will close the bond market today (Thursday). Gold is having its 2nd biggest percentage weekly gain of the year, while DXY hits 15-month highs. Whatsapp Broadcast Group members who entered long XAUUSD last Wednesday (after the Fed) at 1770/73 had the final target of 1865 yesterday--that is a $90 move in gold. Premium Insights members got a new trade yesterday. Here is the last gold chart Ashraf gave yesterday to the WBG when it reached 1845. 

US CPI rose 6.2% y/y compared to 5.8% expected. It was the highest pace since 1990 and just two ticks from the highest pace since the early 1980s. Core measures were similarly strong as housing inflation picked up.

The US dollar surged on the headlines and legged even higher after a US 30-year bond auction tailed by a stunning 5.2 basis points. The moves in bonds are reminiscent of the pops in UK, Canadian and Australian markets after the recent central bank surprises. US 5s rose 16 bps to 1.225%, which is the largest one-day move since the dawn of the pandemic.

Technically, the biggest moves were range breaks in EUR/USD and GBP/USD. The fall in the euro below 1.1500 puts it at the worst level since July 2020 while cable erased the 2021 gain.

The moves threaten a US dollar breakout more broadly. We would only caution that inflation is a global phenomenon. If the Fed shifts more hawkishly, so will other global central banks. That will add considerable volatility.

At the same time, the shift higher in rate expectations caused a second day of selling in US equities, particularly in tech. If that continues to unfold, risk aversion will offer more of a bid for the dollar, yen, Swiss franc and euro against the rest of the field.

With markets being steered by bonds, Thursday will offer an interesting dynamic. It's Veteran's Day in the US but the only market closed for it is bonds. That will leave the rest of the market to fly blind and the US economic calendar is bare.