Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
FX Breakout Monitor: GBP and CHF winning race to bottom
John J. Hardy
Chief Macro Strategist
Summary: EURCHF looked at new local highs today, just as USDCHF also tested the waters above parity after yesterday’s local breakout higher. But momentum was generally hard to come by in a rather quiet session outside of the G10 weakling of the day, the pound sterling.
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The USD comeback hasn’t impressed with further momentum today, a very quiet one across most of FX. We did see a solid comeback from the AUD overnight and JPY and especially CHF remain quite weak, with a number of JPY and CHF crosses having broken new territory recently. The day’s worst performer was sterling, which dipped below key technical levels on weak economic data, but remains far from actual breakout levels to the downside.
Breakout signal tracker
Here is our tracker of highlighted breakout signals, one we started yesterday with the USDJPY breakout that we actually highlighted at the time of publication rather than waiting for the closing level, which would have saved us 20 pips – alas, the entry level is less interesting than whether the breakout progresses or is immediately rejected here.
The USD comeback hasn’t impressed with further momentum today, a very quiet one across most of FX. We did see a solid comeback from the AUD overnight and JPY and especially CHF remain quite weak, with a number of JPY and CHF crosses having broken new territory recently. The day’s worst performer was sterling, which dipped below key technical levels on weak economic data, but remains far from actual breakout levels to the downside.
Breakout signal tracker
Here is our tracker of highlighted breakout signals, one we started yesterday with the USDJPY breakout that we actually highlighted at the time of publication rather than waiting for the closing level, which would have saved us 20 pips – alas, the entry level is less interesting than whether the breakout progresses or is immediately rejected here.
Today’s FX Breakout monitor
Page 1: Probably the most interesting development on the day was the attempt through parity in USDCHF as EURCHF has also progressed a bit higher and has followed up nicely after last week’s break higher. USDJPY closed yesterday at a new 19-day high but is back below the obvious key 110.00 today. The potential AUDCAD break we highlighted yesterday was never triggered on the daily close and the strong bid in AUD in the wake of the Reserve Bank of Australia meeting overnight took AUD further away from the downside break level. Elsewhere, sterling stumbled badly but remains far from downside break levels in the key pairs – we discuss GBPUSD below.
Page 1: Probably the most interesting development on the day was the attempt through parity in USDCHF as EURCHF has also progressed a bit higher and has followed up nicely after last week’s break higher. USDJPY closed yesterday at a new 19-day high but is back below the obvious key 110.00 today. The potential AUDCAD break we highlighted yesterday was never triggered on the daily close and the strong bid in AUD in the wake of the Reserve Bank of Australia meeting overnight took AUD further away from the downside break level. Elsewhere, sterling stumbled badly but remains far from downside break levels in the key pairs – we discuss GBPUSD below.
Page 2: New breakouts nowhere in evidence, but many EM currencies leaning toward new highs versus the US dollar again and the gold correction hasn’t proven particularly deep yet.
Chart: USDCHF
We highlighted the USDCHF chart yesterday in addition to the USDJPY chart – two pairs that will likely remain correlated if carry trading remains popular and US yields head higher after US Treasury auctions later today, tomorrow and Thursday. The parity level was taken out intraday today in USDCHF and a hold above there could see the focus shift quickly to the 1.0125+ top, a level that coincides nicely with about 1.1300 in EURUSD, assuming a more or less stable EURCHF (which may be assuming a lot.)
We highlighted the USDCHF chart yesterday in addition to the USDJPY chart – two pairs that will likely remain correlated if carry trading remains popular and US yields head higher after US Treasury auctions later today, tomorrow and Thursday. The parity level was taken out intraday today in USDCHF and a hold above there could see the focus shift quickly to the 1.0125+ top, a level that coincides nicely with about 1.1300 in EURUSD, assuming a more or less stable EURCHF (which may be assuming a lot.)
Chart: GBPUSD
Sterling sentiment soured further today on a weak Services PMI for January that suggest momentum continues to come out of the UK economy. The local break out levels to the downside for sterling pairs is still quite some way from current level, but the price action did take GBPUSD below the 200-day moving average today and below the psychologically important 1.3000 level as we await further Brexit headlines.
Sterling sentiment soured further today on a weak Services PMI for January that suggest momentum continues to come out of the UK economy. The local break out levels to the downside for sterling pairs is still quite some way from current level, but the price action did take GBPUSD below the 200-day moving average today and below the psychologically important 1.3000 level as we await further Brexit headlines.
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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