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 rallies post FOMC, but more work to do
John J. Hardy
Chief Macro Strategist
Summary: The USD was weaker heading into the FOMC meeting last night and headed weaker still after the statement release, only to reverse course sharply during Chair Powell’s press conference. This keeps the USD outlook as murky as ever.
For a PDF copy of this edition, click here.
The USD rally was halted in its tracks at the Powell press conference yesterday, which failed to confirm the market’s heavy lean for a more dovish outcome, as Powell dismissed inflation dip as down to “transitory” factors and refused to offer directional guidance on the next policy move.
This leaves breakout traders with little to look at for the USD pairs, though USDCHF is perhaps closest to make an interesting bid for a break, together with precious metals to the downside. Elsewhere, the AUD remains weak but needs to hold breaks lower after next Tuesday’s Reserve Bank of Australia meeting for bears to find confirmation that a breakdown is afoot. We put an EURAUD long on our signal tracker yesterday.
Gold is on the cusp of joining silver in posting new lows versus the US dollar, something that would likely require that the market continues to price lower odds for Fed rate cuts later this year, possibly on strong US economic data. On that account, we will watch the April ISM non-manufacturing survey and jobs report tomorrow for implications for the USD to break higher eventually in USDJPY, USDCHF and the precious metals.
Breakout signal tracker
Today is the first day that the profit-taking window for EURSEK is coming into view and we will take profit on the signal here around 10.70 for a nice 3+ ATR as we would have taken profit ahead of the weekend anyway and nice to take off near the current highs. Our USDCAD long has come back from a near-death experience, though the outlook will only improve further if it can work back above 1.3500.
The USD rally was halted in its tracks at the Powell press conference yesterday, which failed to confirm the market’s heavy lean for a more dovish outcome, as Powell dismissed inflation dip as down to “transitory” factors and refused to offer directional guidance on the next policy move.
This leaves breakout traders with little to look at for the USD pairs, though USDCHF is perhaps closest to make an interesting bid for a break, together with precious metals to the downside. Elsewhere, the AUD remains weak but needs to hold breaks lower after next Tuesday’s Reserve Bank of Australia meeting for bears to find confirmation that a breakdown is afoot. We put an EURAUD long on our signal tracker yesterday.
Gold is on the cusp of joining silver in posting new lows versus the US dollar, something that would likely require that the market continues to price lower odds for Fed rate cuts later this year, possibly on strong US economic data. On that account, we will watch the April ISM non-manufacturing survey and jobs report tomorrow for implications for the USD to break higher eventually in USDJPY, USDCHF and the precious metals.
Breakout signal tracker
Today is the first day that the profit-taking window for EURSEK is coming into view and we will take profit on the signal here around 10.70 for a nice 3+ ATR as we would have taken profit ahead of the weekend anyway and nice to take off near the current highs. Our USDCAD long has come back from a near-death experience, though the outlook will only improve further if it can work back above 1.3500.
Today’s FX Breakout monitor
Page 1: AUDUSD is poking at the big 0.7000 area ahead of the RBA next Tuesday – we would like to short, but risk/reward looks difficult – will have another look in the sessions ahead. Also note the USDCAD upside break level is not much more than a half ATR away (though the deep blue for all of the ATR’s shouts how low volatility is at present across FX).
Page 1: AUDUSD is poking at the big 0.7000 area ahead of the RBA next Tuesday – we would like to short, but risk/reward looks difficult – will have another look in the sessions ahead. Also note the USDCAD upside break level is not much more than a half ATR away (though the deep blue for all of the ATR’s shouts how low volatility is at present across FX).
Page 2: the USD strength more in evidence versus EM than within the G10 as USDRUB has broken up today (see chart below) and could be headed for a test of the prior range top and USDZAR is having a look higher ahead of South African elections next week on the 8th. Note that gold looking to join silver in eyeing a break lower.
Chart: USDRUB
We add a USDRUB long to the signal tracker as the USD looks firm versus EM and the contaminated Russian oil pipeline story represents a near-term risk to the ruble. The 45-day high isn’t until the 66.35 area.
We add a USDRUB long to the signal tracker as the USD looks firm versus EM and the contaminated Russian oil pipeline story represents a near-term risk to the ruble. The 45-day high isn’t until the 66.35 area.
Chart: XAUUSD
Spot gold is breaking lower in the wake of the less dovish than expected Federal Open Market Committee last night and could have a run at the important $1,250 area and then some if US data is particularly strong and further reduces the odds of imminent Fed easing.
Spot gold is breaking lower in the wake of the less dovish than expected Federal Open Market Committee last night and could have a run at the important $1,250 area and then some if US data is particularly strong and further reduces the odds of imminent Fed easing.
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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