Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
You can access both of our platforms from a single Saxo account.
FX Breakout Monitor: Risk sentiment reverses again
John J. Hardy
Chief Macro Strategist
Summary: Friday’s ugly session for equities and risk-correlated currencies has yielded to a swift change of direction yesterday and especially today, with the JPY going from strength to weakness and AUD and NZD poking up at breakout levels.
For a PDF copy of this edition, click here.
Currency traders are suffering a case of whiplash as JPY crosses are reversing hard back to the upside (catching our USDJPY short position the wrong way around and completing a string of ugly reversals for most USD breakout trades). Elsewhere, renewed strength in risk appetite is seeing AUD and NZD on the verge of breaking higher versus the US dollar and already breaking higher versus the sideways euro.
We follow the EURAUD downside breakout ahead of today’s close, sensing that the sudden change in risk on could be the beginning of a reassessment of the dovish Federal Reserve (read: not continuing to favour the knee-jerk celebration last week of the Fed bringing back the policy punchbowl by abandoning QT and eliminating rate hike guidance).
Breakout signal tracker
This morning, we talked about reducing USDJPY shorts by half and we will now take off the remainder as well, given the price action today and complete lack of follow-through of the price action from Friday’s weak close in JPY crosses (note AUDJPY for example). We add a EURAUD short at current market levels.
Currency traders are suffering a case of whiplash as JPY crosses are reversing hard back to the upside (catching our USDJPY short position the wrong way around and completing a string of ugly reversals for most USD breakout trades). Elsewhere, renewed strength in risk appetite is seeing AUD and NZD on the verge of breaking higher versus the US dollar and already breaking higher versus the sideways euro.
We follow the EURAUD downside breakout ahead of today’s close, sensing that the sudden change in risk on could be the beginning of a reassessment of the dovish Federal Reserve (read: not continuing to favour the knee-jerk celebration last week of the Fed bringing back the policy punchbowl by abandoning QT and eliminating rate hike guidance).
Breakout signal tracker
This morning, we talked about reducing USDJPY shorts by half and we will now take off the remainder as well, given the price action today and complete lack of follow-through of the price action from Friday’s weak close in JPY crosses (note AUDJPY for example). We add a EURAUD short at current market levels.
Today’s FX Breakout monitor
Page 1: JPY crosses are reversing hard from Friday’s strength and AUD is already breaking higher versus the EUR and USD today if it closes at current levels or stronger. We like the technical setup of the NZDUSD break higher, but we’re hesitant to jump in until we have a look at tonight’s Reserve Bank of New Zealand meeting.
Page 1: JPY crosses are reversing hard from Friday’s strength and AUD is already breaking higher versus the EUR and USD today if it closes at current levels or stronger. We like the technical setup of the NZDUSD break higher, but we’re hesitant to jump in until we have a look at tonight’s Reserve Bank of New Zealand meeting.
Page 2: EURSEK is breaking lower again – this could extend on the assumption that risk appetite remains strong as smaller currencies all stand to benefit. The same goes for EURNOK, especially if oil participates in hopes that growth will respond to the world’s accommodative policy makers and hopes of improving USD liquidity on the Fed’s coming tapering of QT.
Chart: EURAUD
A weak close today in EURAUD could set up a considerable run lower here on the hope that the global growth outlook will improve on Chinese stimulus and more accommodative central bank policy. Note the 200-day moving average and levels slightly lower that have been in play so many times this year. AUDUSD has been in a tight congest range as well, A significant further melt-up in risk appetite could set the tone for a significant move lower toward the sub-1.5400 lows from late last year.
A weak close today in EURAUD could set up a considerable run lower here on the hope that the global growth outlook will improve on Chinese stimulus and more accommodative central bank policy. Note the 200-day moving average and levels slightly lower that have been in play so many times this year. AUDUSD has been in a tight congest range as well, A significant further melt-up in risk appetite could set the tone for a significant move lower toward the sub-1.5400 lows from late last year.
Chart: EURSEK
EURSEK having a look lower in what looks like a broadening theme of smaller currencies rising against the G3 currencies, a theme that could strengthen if we go from perceiving the risk sentiment improvement as merely being a bounce-back to becoming an outright melt-up. Any improvement in activity numbers in Europe could add fuel for downside potential.
EURSEK having a look lower in what looks like a broadening theme of smaller currencies rising against the G3 currencies, a theme that could strengthen if we go from perceiving the risk sentiment improvement as merely being a bounce-back to becoming an outright melt-up. Any improvement in activity numbers in Europe could add fuel for downside potential.
Chart: AUDJPY
AUDJPY showing some of the highest energy in turning from Friday’s weak session as the AUD and JPY stretch in opposite directions; a mere few sessions after registering a downside breakout, this pair is staring down an upside breakout. Watching for further development potential if the big AUDUSD sticks higher as well.
AUDJPY showing some of the highest energy in turning from Friday’s weak session as the AUD and JPY stretch in opposite directions; a mere few sessions after registering a downside breakout, this pair is staring down an upside breakout. Watching for further development potential if the big AUDUSD sticks higher as well.
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.
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.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...