Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
FX Breakout Monitor: Dollar bulls play the waiting game
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).
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).
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.
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.
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.
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 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.
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.
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.
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.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer