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Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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FX Breakout Monitor: USD breakdown spreading
John J. Hardy
Chief Macro Strategist
Summary: The USD has been pushed over the edge since the FOMC meeting in several major USD pairs, including EURUSD already on Friday. Elsewhere, sterling is stumbling badly again and SEK threatens to join and NOK are on the move.
Click here for a PDF version of today's Breakout Monitor
The market let rip with a powerful bout of USD selling in the wake of last week’s Federal Open Market Committee meeting, and EURUSD joined the list of major USD pairs breaking against the greenback’s favour. We add a EURUSD long to our breakout signal tracker list, as the move feels a bit different qualitatively from prior USD moves, and despite the fact that so many prior signals have led nowhere. The only stragglers in breaking higher versus the USD within the G10 are now the struggling sterling, and the Aussie and Kiwi, which have some catching up to do after having been beaten down by a cycle of dovish central bank moves.
Breakout signal tracker
We add a EURUSD long signal today after Friday saw the pair close at a new 19-day and 49-day high, placing the stop rather wide in ATR terms as recent price activity suggests trading ranges may be expanding here.
The market let rip with a powerful bout of USD selling in the wake of last week’s Federal Open Market Committee meeting, and EURUSD joined the list of major USD pairs breaking against the greenback’s favour. We add a EURUSD long to our breakout signal tracker list, as the move feels a bit different qualitatively from prior USD moves, and despite the fact that so many prior signals have led nowhere. The only stragglers in breaking higher versus the USD within the G10 are now the struggling sterling, and the Aussie and Kiwi, which have some catching up to do after having been beaten down by a cycle of dovish central bank moves.
Breakout signal tracker
We add a EURUSD long signal today after Friday saw the pair close at a new 19-day and 49-day high, placing the stop rather wide in ATR terms as recent price activity suggests trading ranges may be expanding here.
Today’s FX Breakout monitor
Page 1: EURUSD has made a clear break higher as of the Friday close. USDJPY perhaps having a hard time putting together a string of new lows as long US rates have backed up slightly here and as asset markets have largely taken to celebrating the Fed’s perceived dovishness. Note EURGBP poking at local cycle highs again today as sterling struggles. Elsewhere, we’re staggered by AUDNZD’s inability to break either way recently.
Page 1: EURUSD has made a clear break higher as of the Friday close. USDJPY perhaps having a hard time putting together a string of new lows as long US rates have backed up slightly here and as asset markets have largely taken to celebrating the Fed’s perceived dovishness. Note EURGBP poking at local cycle highs again today as sterling struggles. Elsewhere, we’re staggered by AUDNZD’s inability to break either way recently.
Page 2: the easy Fed has EM all-abuzz, with a firmer response in the CNY after the FOMC likely helping the USDSGD and USDTHB to deepen their sell-offs, while only USDMXN and USDTRY are lagging a bit in showing USD weakness (remember the very heavy carry on TRY which is a strong tail wind for USDTRY shorts). Besides the ongoing run higher for gold, we would highlight EURSEK near pivotal levels near 10.60 as we discuss in the chart below.
Chart: EURUSD
EURUSD has poked above the 19-day and 49-day highs today with the prior attempts at breaking both of these levels having failed to generate any directional interest both to the upside and to the downside since late last November. Here’s to hoping that the move sticks this time – trend traders have suffered too long here!
EURUSD has poked above the 19-day and 49-day highs today with the prior attempts at breaking both of these levels having failed to generate any directional interest both to the upside and to the downside since late last November. Here’s to hoping that the move sticks this time – trend traders have suffered too long here!
Chart: EURSEK
The technical setup for a breakout to the downside here is rather interesting with the prior pivot and support line at stake just below 10.60. As well, EURNOK recently established precedent by breaking lower. We’ll watch this one over the next couple of days. The two short SEK trades from late April/early May were far and away the best performing of those signals we added to the signal tracker.
The technical setup for a breakout to the downside here is rather interesting with the prior pivot and support line at stake just below 10.60. As well, EURNOK recently established precedent by breaking lower. We’ll watch this one over the next couple of days. The two short SEK trades from late April/early May were far and away the best performing of those signals we added to the signal tracker.
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.
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