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: USD soft on strong CNY and trade deal hopes
John J. Hardy
Chief Macro Strategist
Summary: Trump tweets touting terrific US-China trade deal to come and a nixing of the March 1 negotiating period deadline have turbocharged risk appetite again and taken USD to the lower end of the trading range again, threatening a break down if the momentum continues – something it hasn’t done in either direction in most cases.
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The USDCNY has pushed down to the lowest levels since last summer as the US-China trade negotiations apparently are entering a promising home stretch, if we are to believe US President Trump’s tweets. This has pushed the USD a bit weaker again, particularly against the more risk-correlated commodity dollars. Elsewhere, JPY crosses are eyeing resistance and even breakout levels on the latest surge in risk appetite.
Breakout signal tracker
We were stopped out of the EURUSD signal back on the 20th as the US dollar has been generally unable to establish impulsive directional movement for any length of time over the last several months in most of the key USD pairs. We are increasingly cautious on breakout prospects until the logjam of recent ranges breaks with more conviction and volatility picks back up – particularly in the wake of whatever deal emerges from US-China trade negotiations.
The USDCNY has pushed down to the lowest levels since last summer as the US-China trade negotiations apparently are entering a promising home stretch, if we are to believe US President Trump’s tweets. This has pushed the USD a bit weaker again, particularly against the more risk-correlated commodity dollars. Elsewhere, JPY crosses are eyeing resistance and even breakout levels on the latest surge in risk appetite.
Breakout signal tracker
We were stopped out of the EURUSD signal back on the 20th as the US dollar has been generally unable to establish impulsive directional movement for any length of time over the last several months in most of the key USD pairs. We are increasingly cautious on breakout prospects until the logjam of recent ranges breaks with more conviction and volatility picks back up – particularly in the wake of whatever deal emerges from US-China trade negotiations.
Today’s FX Breakout monitor
Page 1: after the failure of the downside breakout signal in EURUSD, that key USD pair is mid-range. USDJPY is not far from another upside break signal, but the USD is generally weak, with the JPY weaker still and actually beginning to break lower in places (EURJPY eyeing a potential break higher on close today, as is GBPJPY (see below). But a bit more volatility and range expansion would be helpful as weak trading ranges are in evidence almost across the board (as indicated by the dark blue shading of the current ATR). The pronounced NZD strength has NZDUSD close to a break level higher. EURGBP is perched near the 19-day low close as we discuss below.
Page 1: after the failure of the downside breakout signal in EURUSD, that key USD pair is mid-range. USDJPY is not far from another upside break signal, but the USD is generally weak, with the JPY weaker still and actually beginning to break lower in places (EURJPY eyeing a potential break higher on close today, as is GBPJPY (see below). But a bit more volatility and range expansion would be helpful as weak trading ranges are in evidence almost across the board (as indicated by the dark blue shading of the current ATR). The pronounced NZD strength has NZDUSD close to a break level higher. EURGBP is perched near the 19-day low close as we discuss below.
Page 2: GBPJPY is showing signs of continuing higher and AUDJPY is having its first look at a possible break higher as well – both of these likely to require a further extension of the tremendous extension higher in risk appetite from the January lows (with uncooperative bond yields the likely driver behind many of these JPY crosses struggling to trend higher). Elsewhere, interesting to note that USD/EM a bit reluctant to follow the CNY’s lead as only USDRUB and possibly USDMXN in play for a potential break lower at the moment.
Chart: EURJPY
EURJPY having a look at upside break levels today as the 19-day high close is up around 125.69, although daily trading ranges don’t offer much support for the idea that the market is heavily involved here. Note that the prior break attempt higher faltered rather quickly.
Chart: EURJPY
EURJPY having a look at upside break levels today as the 19-day high close is up around 125.69, although daily trading ranges don’t offer much support for the idea that the market is heavily involved here. Note that the prior break attempt higher faltered rather quickly.
Chart: NZDUSD
NZDUSD is poking near the range highs, the first DM/USD pair together with GBPUSD and USDCAD to look at local upside break levels. A Reserve BAnk of New Zealand speech is up later today and we don’t have any broad confirmation from elsewhere that the market is taking a strong view on the US dollar, so we’ll watch passively for now here and watch how subsequent price behavior shapes up – USD trends outside of USD/EM have been largely nonexistent so far this year.
NZDUSD is poking near the range highs, the first DM/USD pair together with GBPUSD and USDCAD to look at local upside break levels. A Reserve BAnk of New Zealand speech is up later today and we don’t have any broad confirmation from elsewhere that the market is taking a strong view on the US dollar, so we’ll watch passively for now here and watch how subsequent price behavior shapes up – USD trends outside of USD/EM have been largely nonexistent so far this year.
Chart: EURGBP
GBP is looking at the range lows in EURGBP, but could be highly susceptible to Brexit headlines this week – particularly whether parliament takes more initiative from the May government to lessen the risk of a No Deal Brexit scenario.
GBP is looking at the range lows in EURGBP, but could be highly susceptible to Brexit headlines this week – particularly whether parliament takes more initiative from the May government to lessen the risk of a No Deal Brexit scenario.
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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