Week In Review: Red Hot CPI, Risk-Off Sentiment, Gold Shines

If one word could be used to describe the past few days, the best fit would be intense.

A sense of anticipation gripped financial markets on Monday as investors braced for another week jampacked with key economic data. China markets reopened after the Lunar New Year break while the dollar kicked off the week on a firm note. On the data front, Germany December industrial production dipped in December, suggesting that the manufacturing sector was not out of the woods yet. In the equity space, Wall Street ended Monday’s session in the red thanks to falling technology stocks.

Our trade of the week was none other than gold. The precious metal attracted investors despite last Friday’s strong US jobs report boosting Fed rate hike bets. We highlighted how gold’s near-term outlook would most likely be influenced by the US inflation report. Interestingly, gold concluded the week gaining 2.8%. Looking at the technical picture, prices are heavily bullish on the daily timeframe with the next key level of interest at $1870.

On Tuesday, the mood across markets was mixed as investors evaluated the risks from central banks tightening monetary policy across the globe. Our currency spotlight shone on the Japanese Yen which weakened against most G10 currencies on Tuesday. Funny enough Yen bulls were injected with renewed at the end of the week as risk aversion sent market players rushing towards prime destinations of safety.

Mid-week, there was certainly a lot on the plate. Data from Europe, speeches from central bank officials, and earnings from Disney and Uber certainly kept traders busy. Disney announced better-than-expected fiscal first-quarter financial results with revenues increasing by 24% year-over-year to $21.82 billion. This beat the estimates of $18.63 billion. With the US inflation report around the corner, we decided to cover some technical setups on our radar. These included the NZDUSD, AUDUSD, USDCAD and EURUSD.

It was all about the US inflation report on Thursday which certainly did not disappoint. US Consumer prices surged to 7.5% in January, topping forecasts for 7.3% thanks to soaring energy costs, labour shortages, and supply chain disruptions. This was the fastest inflation rate since 1982. The report certainly raised the prospects of the Federal Reserve raising interesting rates aggressively to battle inflation.

Infact, the report rattled equity markets on Thursday dragging the S&P500 and other major indexes lower. The risk-off mood intensified on Friday as the terrible combination of geopolitical tensions concerning Ukraine, inflation fears, and speculation of a more aggressive Fed left investors on edge. The S&P500 ended the week roughly 1.8% lower while the Nasdaq shed 3%.

As Treasury yields plunged and risk aversion dominated markets, gold shone through the chaos. The precious metal exploded higher on Friday, cutting through multiple resistance levels like a hot knife through butter. With bulls in the driving seat, the next key level of interest can be found at $1870.

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