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: EURUSD breakout suffers rejection
John J. Hardy
Chief Macro Strategist
Summary: The USD rally has suffered an all out tactical rejection in places today, led by EURUSD as German CPI and Eurozone growth data surprise to the upside.
For a PDF copy of this edition, click here.
Another day brings another change of tone, and in fact today saw two different phases – some risk-off overnight on weak Chinese PMI surveys and Google results late yesterday, followed by a stronger Eurozone and Italian GDP estimates for Q1 and massive surprises on German CPI for April powering a euro comeback across the board. EURUSD looks fully reversed from the downside breakout attempt if it closes the week above 1.1200, although strictly speaking 1.1250 offers better confirmation of a reversal.
Today we merely make a couple of observations on the latest moves as we are reluctant to take on new positions ahead of tomorrow evening’s Federal Open Market Committee meeting (though we may add a EURAUD position tomorrow on a strong close today – see below.)
Breakout signal tracker
The EURUSD short was stopped out on today’s steep back-up and we feel less bad about our “poor” entry level for the position, as even had we waited for a better entry, the stop level would not have been far above 1.1200 anyway. The EURSEK long still in working order, and we raise the stop level there as it would be disappointing after yesterday’s new high close for the cycle to see the price action back below 10.60 – the time frame for the trade runs out Friday if the stop survives. The USDCAD long is still alive after a weak GDP print from Canada today.
Another day brings another change of tone, and in fact today saw two different phases – some risk-off overnight on weak Chinese PMI surveys and Google results late yesterday, followed by a stronger Eurozone and Italian GDP estimates for Q1 and massive surprises on German CPI for April powering a euro comeback across the board. EURUSD looks fully reversed from the downside breakout attempt if it closes the week above 1.1200, although strictly speaking 1.1250 offers better confirmation of a reversal.
Today we merely make a couple of observations on the latest moves as we are reluctant to take on new positions ahead of tomorrow evening’s Federal Open Market Committee meeting (though we may add a EURAUD position tomorrow on a strong close today – see below.)
Breakout signal tracker
The EURUSD short was stopped out on today’s steep back-up and we feel less bad about our “poor” entry level for the position, as even had we waited for a better entry, the stop level would not have been far above 1.1200 anyway. The EURSEK long still in working order, and we raise the stop level there as it would be disappointing after yesterday’s new high close for the cycle to see the price action back below 10.60 – the time frame for the trade runs out Friday if the stop survives. The USDCAD long is still alive after a weak GDP print from Canada today.
Today’s FX Breakout monitor
Page 1: the most notable developments don’t show up on a breakout monitor, namely, today’s reversal in the USD rally in spots – particularly in EURUSD and GBPUSD. Note that both EURAUD and GBPAUD are looking at new 19-day high closes today, as is GBPCAD and (almost) EURCAD. EURCHF is very close to an upside breakout.
Page 1: the most notable developments don’t show up on a breakout monitor, namely, today’s reversal in the USD rally in spots – particularly in EURUSD and GBPUSD. Note that both EURAUD and GBPAUD are looking at new 19-day high closes today, as is GBPCAD and (almost) EURCAD. EURCHF is very close to an upside breakout.
Page 2: here we note the GBPCHF rally on the day – looks convincing if it can hold a strong close (see chart below) and the market has a generally risk-positive take post-FOMC and the Bank of England fails to dent the sterling’s resurgence here. Elsewhere, we note XAGUSD looking at the low closing level for the cycle.
Chart: EURAUD
EURAUD encapsulates the shift in the news today, as China’s weak PMIs worked against the Aussie’s favour while positive data surprises in Europe have boosted the euro. The currency market likely poorly positioned for positive fundamental news out of Europe as the euro has been used for funding carry trades. Note the 200-day moving average in play.
EURAUD encapsulates the shift in the news today, as China’s weak PMIs worked against the Aussie’s favour while positive data surprises in Europe have boosted the euro. The currency market likely poorly positioned for positive fundamental news out of Europe as the euro has been used for funding carry trades. Note the 200-day moving average in play.
Chart: GBPCHF
GBPCHF with a banner day as CHF competed with USD and AUD in the race to the bottom today . A strong close near current levels looks convincing for a test of the top at 1.34 and perhaps beyond if the Bank of England doesn’t throw up any obstacles or especially if it surprises on the hawkish side.
GBPCHF with a banner day as CHF competed with USD and AUD in the race to the bottom today . A strong close near current levels looks convincing for a test of the top at 1.34 and perhaps beyond if the Bank of England doesn’t throw up any obstacles or especially if it surprises on the hawkish side.
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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