On Wednesday, markets were stunned by the strongest US CPI data print since 1981 and it was a big shock to markets. Even the Fed’s Clarida said he was ‘surprised’. Most analysts were expecting a higher CPI but not this high, and certainly not to be rising this quickly. The reaction midweek was marked: Eurodollar futures slammed lower (implying sooner Fed rate hikes), equities sold off, and the USDJPY soared higher. The USDJPY pair should remain supported. Next week, watch for real yields. If real yields move higher, that creates some downward pressure for gold.

Other key events from the past week

• USD: Inflation data, May 12: The Federal Reserve expected a temporary spike higher in inflation, but this was a huge rise. As flagged last week a sharp move higher may have investors pricing in an early US interest rate rise.
• Gold: Capped, for now, May 13: Gold faces a headwind from the strong USD on the US CPI beat. Gold traders should watch real yields (bonds minus inflation). Rising real yields keeps gold prices pressured lower and vice versa.
• FTSE100: Bounces midweek, May 14: Global indices fell lower at the start of the week. However, remember that if/when the selling in equity markets stop, some analysts consider the FTSE 100 remains undervalued and is on course to fill the gap to 7500 by year-end. Does the FTSE 100 offer value right now?

Key events for the coming week

• AUD: Rate meeting minutes, May 18: The RBA is focusing on labour data right now. Will the minutes reveal any more detail of what they want to see in the labour market before announcing bond tapering? It could be helpful for traders.
• EUR: PMI data, May 21: European PMI data will reveal the level of optimism that Europe’s purchase managers are feeling. However, expect the main driver of the EURUSD to remain the German Bund and US 10-year yield spread.