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 softens, JPY firms as mood sours
John J. Hardy
Chief Macro Strategist
Summary: Ahead of tomorrow’s key US event risks and the crunch Brexit summit, both the US dollar and sterling are weaker, with AUDUSD and USDCAD even eyeing breakout levels, although a hard charging JPY on weak risk sentiment confuses the latter development.
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Yet another day with very constricted trading ranges. Today’s notable movers were the US dollar and sterling, both of which traded weaker across the board today. The strongest performer was the Japanese yen, which perked up on the supportive combination of weak risk sentiment and a dip in US yields.
The very muted trading ranges in currencies may expand tomorrow as we await Federal Open Market Committee minutes and the latest US CPI data for March with US yields perched near pivotal levels. And sterling almost has to move in the wake of tomorrow’s crunch Brexit summit to determine the process from here, even if we get a long delay scenario.
Breakout signal tracker
We’re still very cautious, given the endless trail of false breaks as broad market volatility has collapsed in recent months, but we’ll zero in on USD pairs after the key US event risks tomorrow.
Yet another day with very constricted trading ranges. Today’s notable movers were the US dollar and sterling, both of which traded weaker across the board today. The strongest performer was the Japanese yen, which perked up on the supportive combination of weak risk sentiment and a dip in US yields.
The very muted trading ranges in currencies may expand tomorrow as we await Federal Open Market Committee minutes and the latest US CPI data for March with US yields perched near pivotal levels. And sterling almost has to move in the wake of tomorrow’s crunch Brexit summit to determine the process from here, even if we get a long delay scenario.
Breakout signal tracker
We’re still very cautious, given the endless trail of false breaks as broad market volatility has collapsed in recent months, but we’ll zero in on USD pairs after the key US event risks tomorrow.
Today’s FX Breakout monitor
Page 1: Today we note both USDCAD and AUDUSD perched at breakout levels to the downside for the US dollar – stay tuned as the AUDUSD signal could prove interesting if it holds through tomorrow’s US event risks. Also note the GBP weakness in the crosses.
Page 1: Today we note both USDCAD and AUDUSD perched at breakout levels to the downside for the US dollar – stay tuned as the AUDUSD signal could prove interesting if it holds through tomorrow’s US event risks. Also note the GBP weakness in the crosses.
Page 2: Here, the Scandies have stared down upside breaks against the EUR (breakdowns in EURSEK and EURNOK) for the better part of a week without committing – still worth paying attention to. Otherwise, note USDZAR trying for a more notable breakdown below its 200-day moving average as platinum has rallied steeply through key resistance over the last few sessions.
Chart: AUDUSD
AUDUSD is a potential breakout candidate, given the clarity of the local pivot level and the break above the first of the descending lines of consolidation. Still, its recent past is littered with a number of false breaks as the range has persisted for some 6-7 months except for the January flash crash and the recent price action has coiled in an ever-shrinking range. Solid range expansion, some good news on Australia’s housing front and strong risk appetite likely needed to drive more than a brief squeeze or head fake higher.
AUDUSD is a potential breakout candidate, given the clarity of the local pivot level and the break above the first of the descending lines of consolidation. Still, its recent past is littered with a number of false breaks as the range has persisted for some 6-7 months except for the January flash crash and the recent price action has coiled in an ever-shrinking range. Solid range expansion, some good news on Australia’s housing front and strong risk appetite likely needed to drive more than a brief squeeze or head fake higher.
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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