Dollar Dumped, Gold Breaks Out

A wave of economic data initially boosted the dollar but pain the bond and stock markets led to a complete turnaround in volatile trading. The Swiss franc was the best performer while the US dollar lagged. After all the excitement, markets will have a chance to digest the moves in Asia because there is no economic data on the calendar.

Thursday's trading was enough to leave the most level-headed analyst a bit confused. A number of cross-currents hit the market:

-          US CPI numbers were close to expected but hit the Fed's target of 2.0%

-          Initial jobless claims fell to the lowest since 2007

-          Several US manufacturing numbers were worse than expected

-          Executives at Wal-Mart and Cisco warned about the economy

-          Chinese Treasury holdings fell $20B in May

Those headlines have differing meanings for different markets and for the Fed. The stock market focused on the negativity from corporates and dropped to a one-month low. The employment, CPI numbers and Chinese flow data spooked the bond market, pushing yields to 2-year highs, breaking 2.75% resistance in 10-year yields.

The FX market was caught in the middle. Risk-off trading and tapering boosted the dollar initially but EUR/USD couldn't fall below 1.3200 and cable remained relentlessly bid. Eventually, declines in stocks weighed on USD/JPY and boosted demand for gold.

As USD/JPY fell to the lows of the day and gold broke key resistance at $1350, a wave of dollar selling hit. Even the commodity currencies made big gains against the dollar and a short-squeeze was likely part of the story.

We will watch how this develops but the breakouts in stocks, bonds and gold can't be ignored and point to interesting days ahead.