Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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FX Breakout Monitor: EUR wilts as USD pokes higher still
John J. Hardy
Chief Macro Strategist
Summary: The euro weakness is taking it to new lows in a few crosses, including in EURUSD and EURJPY, even if volatility is a bit sluggish, to say the least. Elsewhere, the US dollar is poking close to or beyond breakout levels as it recently avoided a larger scale breakdown that seemed to threaten, keeping momentum traders guessing.
The link below takes you to the latest FX Breakout Monitor, a concise PDF overview of all current and recent price breakouts for the short and medium term for major FX pairs and spot silver and gold.
Today’s Breakout monitor
The euro weakness of late stands out as a prominent development, though it has been a bit of a slow affair and implied volatility in the options for EURUSD is nearing all-time record low levels for all tenors. The euro is also on the verge of new local breakouts to the downside versus the JPY and CHF, with the former a bit more interesting on recent surprise volatility in the Japanese government bond market, where yields have spiked higher recently. EURGBP has also had a go at new local lows as Nigel Farage’s Brexit moved away from directly challenging the Tories in the December election by announcing Brexit party candidates would not run in clear Tory districts.
US President Trump is out speaking not long after we are posting this and could jar the market with comments, for better or worse, on the US-China trade deal negotiations. US Fed Chair Powell is set to speak tomorrow, so we could have the makings for a bit more volatility picking up, especially as the US dollar rally after the recent sell-off is nearing the tilting point for a larger move if it persists.
The global bond sell-off has cast a cloud over precious metals, where breakouts lower unfolded late last week and are two of the few breakouts to extend into profitable territory for a time in this generally choppy market for momentum traders.
Today’s Breakout Highlight: EURUSD
EURUSD is poking to new lows starting with Friday’s new 19-day low close, the first short-term breakout to the downside since. Arguably, as the move goes against the previous large rally wave, the bears have more to prove, but a failure of the 1.1000 level and therewith a round number and the 61.8% Fibo area, could set the pair on a course to a full test of the sub-1.0900 lows – a surprising more than 2 ATR away from current levels, due to very compressed trading ranges of late.
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