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FX Breakout Monitor: Dollar bulls play the waiting game

Forex 5 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  Incoming data have laid the dollar uptrend to rest for now, but while the rally may be down it's certainly not out.

For a PDF copy of this edition, click here.

Last week’s across-the-board surge in the US dollar has yielded to a couple of days of back-filling, making for a painful wait for USD bulls as a cavalcade of economic data risks and the Federal Open Market Committee meeting on Wednesday lie dead ahead in an environment where it is difficult to find the volatility pulse. 

Breakout signal tracker

Our NZDUSD short was stopped out just below break-even at the lowered stop. We may have gotten too aggressive in managing risk, but it is also extremely disappointing that the price action has taken the pair some two ATR from the max draw-up. Likewise, our EURUSD entry was unfortunately low and the stop may be too tight, but we’ll be happy to leave this alone and re-enter on new breaks lower if the USD surges again after this week’s event risks.

The stop on our EURSEK long survived the consolidation on Friday and the position looks in good shape for more upside on fresh higher closes.  We add a USDCAD long based on last week’s break higher as the pair has been one of the better-behaved USD pairs on this dollar rally. We have added a Sum, indicating the sum of the risk versus reward for the last 10 signals that we have tracked. It is more useful than the “percentage” measure if we assume that a fixed maximum amount is risked per signal (i.e. position size adjusted for distance to the stop).
Source: Saxo Bank
Today’s FX Breakout monitor

Page 1: most USD pairs are taking a breather after last week’s dollar surge, but it's interesting to note USDCHF pulling to new highs on a sharply weaker CHF. USDCAD is also poised not far from the highs for the cycle while GBPUSD remains heavy as well. The other crosses listed here are rather quiet.
Source: Saxo Bank
Page 2: the recent AUDJPY and GBPJPY downside break attempts have not yet led to any real follow-through lower. Elsewhere, note the EURNOK surge looking at a second consecutive day trading at new 19-day highs and USDTRY, which is having a go at a seventh consecutive high.
Source: Saxo Bank
Chart: USDCAD

USDCAD has consolidated less than some other USD pairs on the one-two whammy of the dovish tone taken last week by the Bank of Canada and  the ugly sell-off in crude oil prices on Friday. The break of the prior price range is still in effect and we watch for further upside potential as long as the 1.3400 area holds through this week’s event risks.
USDCAD
Source: Saxo Bank
Chart: EURSEK

The EURSEK consolidation was rather large in ATR terms, but not relative to the prior rally. Now we watch for whether the pair can challenge the multi-year highs up above 10.70.
EURSEK
Source: Saxo Bank

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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