Taper Trade Takes Hold, Gold Sold

The market piled into trades benefiting from fewer Fed asset purchases, leading to massive moves in markets. The best performers were USD and CHF while NZD led the commodity currency rout. Gold crashed to a cycle low. 2 AUDUSD, 2 USDCHF, 2 GBPUSD and 1 EURUSD premium trades are in progress. Detailed access is found in the latest Premium Insights. 

The market embraced the taper trade on Thursday sending bonds and stocks while the US dollar surged. Numerous key levels broke but none may be bigger than 10-year yields rising above a double-top at 2.40%. The breakout, albeit marginal at a close of 2.41%, points to the end of the generational bull market in bonds. As yields rise, the consequences are difficult to forecast but at the margin it means higher demand for USD-denominated assets and that should boost the dollar.

One of the major breakdowns has been gold as the money-printing, dollar crashing thesis evaporates. Gold fell $70 to as low as $1276, cruising through the April crash low of $1322. With technical support broken, the gold market is extremely vulnerable to a deeper decline.

The S&P 500 also broke through the key support zone at 1597/1600 as it posted the largest one-day decline since 2011. It was interesting to see the market reaction to upbeat economic data. The Philly Fed hit a two-year high at +12.5 compared to -2.0 expected and stocks slumped afterwards because better growth brings forward tapering. We question whether this relationship can continue; undoubtedly better growth is good news for corporate profits.

The Friday Asia-Pacific calendar is quiet as usual. The lone item on the menu is a speech from Kuroda and 0635 GMT.