Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
FX Breakout Monitor: CHF weaker, eyeing EURUSD on ECB
John J. Hardy
Chief Macro Strategist
Summary: Sterling, NOK, USDCHF and EURUSD in focus today.
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Today is a fairly typical, quiet Monday, one with little prospect for USD developments as US markets are partially closed for a holiday. Nonetheless, EURCHF and USDCHF have been poking at interesting levels and could prove a pivotal week for EUR pairs over this Thursday’s European Central Bank meeting.
Not much to update on a Monday with a US holiday today, but we nonetheless have two major CHF pairs looking at interesting break levels and the AUDNZD break higher we noted late last week is still in play, awaiting confirmation or rejection (in all likelihood) over the Q4 CPI numbers from New Zealand tomorrow evening (early Wednesday in New Zealand).
The sterling situation looks very nervous here ahead of a Theresa May speech announcing her 'Plan B' today – consensus believes that she will revisit the original deal agreed with the European Union looking for further concessions, which few believe the EU is ready to grant. Unsure if we will be able to draw firm conclusions that can drive another leg of sustained sterling direction unless the EU position changes or May announces she is ready to proceed with a clean Brexit on March 29.
Today’s FX Breakout monitor
Page 1: EURCHF poking at important range resistance near 1.1350 today, but don’t we need the ECB meeting out of the way to have confidence in direction there. As well, Brexit developments could prove a key driver of CHF through GBPCHF flows, which were very notable on the large rally last week.
Elsewhere, we await further developments in AUDNZD as noted above and for other EUR-cross developments, particularly in EURUSD into the end of this week.
Today is a fairly typical, quiet Monday, one with little prospect for USD developments as US markets are partially closed for a holiday. Nonetheless, EURCHF and USDCHF have been poking at interesting levels and could prove a pivotal week for EUR pairs over this Thursday’s European Central Bank meeting.
Not much to update on a Monday with a US holiday today, but we nonetheless have two major CHF pairs looking at interesting break levels and the AUDNZD break higher we noted late last week is still in play, awaiting confirmation or rejection (in all likelihood) over the Q4 CPI numbers from New Zealand tomorrow evening (early Wednesday in New Zealand).
The sterling situation looks very nervous here ahead of a Theresa May speech announcing her 'Plan B' today – consensus believes that she will revisit the original deal agreed with the European Union looking for further concessions, which few believe the EU is ready to grant. Unsure if we will be able to draw firm conclusions that can drive another leg of sustained sterling direction unless the EU position changes or May announces she is ready to proceed with a clean Brexit on March 29.
Today’s FX Breakout monitor
Page 1: EURCHF poking at important range resistance near 1.1350 today, but don’t we need the ECB meeting out of the way to have confidence in direction there. As well, Brexit developments could prove a key driver of CHF through GBPCHF flows, which were very notable on the large rally last week.
Elsewhere, we await further developments in AUDNZD as noted above and for other EUR-cross developments, particularly in EURUSD into the end of this week.
Page 2: Not much to report here, as NOK traders haven’t found the hoped for momentum on recent probes at new highs for NOK versus SEK and EUR; Norges Bank is up on Thursday. Note that the recent AUDJPY is now the 19-day high for that pair, with the previous 19-day high having slipped out of the 19-day window. Other JPY crosses looking a bit pivotal for possible further JPY weakness as well if the rally in risky assets picks up again.
Chart: EURUSD
Again, our strong assumption remains that EURUSD will eventually have to commit higher or lower, and the lower trigger is not far away now – nominally 1.1344 for the 19-day low, though given the very low volatility, we prefer to look for the other side of the ECB meeting and a close through the 1.1300 level, which looks a more compelling break. The first major target lower would likely be 1.1000, as big round levels have a history of strong magnetism in EURUSD.
Again, our strong assumption remains that EURUSD will eventually have to commit higher or lower, and the lower trigger is not far away now – nominally 1.1344 for the 19-day low, though given the very low volatility, we prefer to look for the other side of the ECB meeting and a close through the 1.1300 level, which looks a more compelling break. The first major target lower would likely be 1.1000, as big round levels have a history of strong magnetism in EURUSD.
Chart: USDCHF weekly
USDCHF is eyeing a new 19-day highs close today (note this is a weekly chart), but the very obvious resistance/psychological level is the parity level, challenged on so many occasions since early 2017 without managing to extend notably higher. Conviction higher would improve further if we see a takeout of this level combined with higher US yields and EURUSD breaking down through 1.1300 as the ECB waxes more cautious this Thursday.
USDCHF is eyeing a new 19-day highs close today (note this is a weekly chart), but the very obvious resistance/psychological level is the parity level, challenged on so many occasions since early 2017 without managing to extend notably higher. Conviction higher would improve further if we see a takeout of this level combined with higher US yields and EURUSD breaking down through 1.1300 as the ECB waxes more cautious this Thursday.
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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