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: Plot shifts on China’s credit growth
John J. Hardy
Chief Macro Strategist
Summary: Currencies lurched into a new gear today on the release of the March credit data out of China, which showed a massive new round of stimulus. This sent the USD and JPY lower and the euro and commodity dollars higher.
The latest March credit data from China was released at 08:00 GMT this morning and set in motion a sudden wave of classic risk-on patterns across markets, with global safe haven bonds selling off heavily (US 10-year benchmark now at a pivotal level above 2.50% –watching closely for further JPY cross implications to the upside if yields continue to rise.) and equities lurching into a fresh, steep ascent. This scrambled yesterday’s developments to a degree, sending the back-and-forth AUD back higher and the pushing the US dollar and especially the yield-sensitive Japanese yen back lower.
The latest price action scrambles the USD picture, as the greenback was generally weak outside of strength versus the yen. The euro picked up a strong bid today, perhaps on the idea that the outlook for EU exports to China will picked up strongly on China’s stimulus (Europe far more leveraged to exports than the more isolated US economy) and on a less bad than expected Eurozone Industrial Production print.
Breakout signal tracker
The churning market does our fresh new signals no favors, though the NOK did firm in the wake of this morning’s risk rally and should stand to benefit from oil trading at new local highs. And if US yields continue to rise, this may support USD versus the lowest yielders like CHF and JPY. A strong close in AUDJPY today merits a look for adding to the list on Monday.
The latest price action scrambles the USD picture, as the greenback was generally weak outside of strength versus the yen. The euro picked up a strong bid today, perhaps on the idea that the outlook for EU exports to China will picked up strongly on China’s stimulus (Europe far more leveraged to exports than the more isolated US economy) and on a less bad than expected Eurozone Industrial Production print.
Breakout signal tracker
The churning market does our fresh new signals no favors, though the NOK did firm in the wake of this morning’s risk rally and should stand to benefit from oil trading at new local highs. And if US yields continue to rise, this may support USD versus the lowest yielders like CHF and JPY. A strong close in AUDJPY today merits a look for adding to the list on Monday.
Today’s FX Breakout monitor
Page 1: The JPY crosses we track here and on Page 2 are all threatening new range breaks save for GBPJPY. Here, the EURJPY rally was sharper than the USDJPY rally, though the latter is closer to taking out the important local range for a possible test higher.
Page 1: The JPY crosses we track here and on Page 2 are all threatening new range breaks save for GBPJPY. Here, the EURJPY rally was sharper than the USDJPY rally, though the latter is closer to taking out the important local range for a possible test higher.
Page 2: No good follow through lower for EURNOK today, perhaps held back to a degree by EURSEK failing to follow suit in the wake of Sweden’s CPI release today. Note Turkey’s underperformance despite the supportive risk backdrop and strength in most of the major EM peers (though Asian EM appears more anchored to the virtually non-moving CNY (in USDCNY terms). Gold and silver remain heavy despite the somewhat weak US dollar as US treasuries are under pressure.
Chart: USDJPY
USDJPY poking up against major resistance into the 112.00 area, which if broken opens up the range towards 114.50, a level that was a major resistance level stretching back to early 2017. The key coincident indicator here is the US treasury market, where further weakness is likely to coincide with a pressure on the JPY broadly – if somewhat less so here than in other crosses – see AUDJPY below, for example.
USDJPY poking up against major resistance into the 112.00 area, which if broken opens up the range towards 114.50, a level that was a major resistance level stretching back to early 2017. The key coincident indicator here is the US treasury market, where further weakness is likely to coincide with a pressure on the JPY broadly – if somewhat less so here than in other crosses – see AUDJPY below, for example.
Chart: AUDJPY
One of the biggest movers on the day was AUDJPY as the yen suffers under the double weight of strong risk sentiment and weak bonds, which expand the carry disadvantage of holding the yen. On the AUD side, the market is responding to the idea that strong Chinese stimulus will feed into demand for Australia’s key commodity exports.
One of the biggest movers on the day was AUDJPY as the yen suffers under the double weight of strong risk sentiment and weak bonds, which expand the carry disadvantage of holding the yen. On the AUD side, the market is responding to the idea that strong Chinese stimulus will feed into demand for Australia’s key commodity exports.
REFERENCE: FX Breakout Monitor overview explanations
The following is a left-to-right, column by column explanation of the FX Breakout Monitor tables.
Trend: a measure of whether the currency pair is trending up, down or sideways based on an algorithm that looks for persistent directional price action. A currency can register a breakout before it looks like it is trending if markets are choppy.
ATR: Average True Range or the average daily trading range. Our calculation of this indicator uses a 50-day exponential moving average to smooth development. The shading indicates whether, relative to the prior 1,000 trading days, the current ATR is exceptionally high (deep orange), somewhat elevated (lighter orange), normal (no shading), quiet (light blue) or exceptionally quiet (deeper blue).
High Closes / Low Closes: These columns show the highest and lowest prior 19- and 49-day daily closing levels.
Breakouts: The right-most several columns columns indicate whether a breakout to the upside or downside has unfolded today (coloured “X”) or on any of the previous six trading days. This graphic indication offers an easy way to see whether the breakout is the first in a series or is a continuation from a prior break. For the “Today” columns for 19-day and 49-day breakouts, if there is no break, the distance from the current “Quote” to the break level is shown in ATR, and coloured yellow if getting close to registering a breakout.
NOTE: although the Today column may show a breakout in action, the daily close is the key level that is the final arbiter on whether the breakout is registered for subsequent days.
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