Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
FX Breakout Monitor: JPY stealing the spotlight
John J. Hardy
Chief Macro Strategist
Summary: The USD rally has stumbled a bit today on a mixed US jobs report, but JPY strength has been more consistent in recent sessions, accelerated by the ECB’s dovish surprise yesterday and weak equity markets.
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Yesterday’s huge break lower in EURUSD is already experiencing a test of confidence today on a mixed US jobs report (most clearly strong was household survey and unemployment rate drop, least positive was the +20k payrolls versus +180k expected. Earnings rose sharply to a new high for the cycle, but were flattered by a fractional and likely random drop in average weekly hours).
Today’s close will be very important for that pair and for the USD outlook into next week.
Elsewhere, JPY crosses are showing the most volatility on a suddenly resurgent JPY. But as the JPY has transitioned from weakest to strongest over the last week, it is only just now challenging breakout levels among the JPY crosses we track – EURJPY and AUDJPY look to be the first to break lower as we discuss below. USDJPY could quickly take over the market focus if the USD rally falters elsewhere.
Breakout signal tracker
We added EURUSD and AUDUSD shorts yesterday and the decent follow through lower allows us to pull down the stop in EURUSD from the initial level.
Yesterday’s huge break lower in EURUSD is already experiencing a test of confidence today on a mixed US jobs report (most clearly strong was household survey and unemployment rate drop, least positive was the +20k payrolls versus +180k expected. Earnings rose sharply to a new high for the cycle, but were flattered by a fractional and likely random drop in average weekly hours).
Today’s close will be very important for that pair and for the USD outlook into next week.
Elsewhere, JPY crosses are showing the most volatility on a suddenly resurgent JPY. But as the JPY has transitioned from weakest to strongest over the last week, it is only just now challenging breakout levels among the JPY crosses we track – EURJPY and AUDJPY look to be the first to break lower as we discuss below. USDJPY could quickly take over the market focus if the USD rally falters elsewhere.
Breakout signal tracker
We added EURUSD and AUDUSD shorts yesterday and the decent follow through lower allows us to pull down the stop in EURUSD from the initial level.
Today’s FX Breakout monitor
Page 1: the EURUSD break lower yesterday was critical stuff, but it needs follow-through and a participation from other USD pairs. Elsewhere, we note the more determined break lower in AUDNZD and EURCHF joining EURJPY in looking at new local lows today.
Page 1: the EURUSD break lower yesterday was critical stuff, but it needs follow-through and a participation from other USD pairs. Elsewhere, we note the more determined break lower in AUDNZD and EURCHF joining EURJPY in looking at new local lows today.
Page 2: The Scandies are putting in a very weak showing today, looking at new cycle lows even against a weak euro. Emerging markets also remain on the defensive on the weak risk appetite. AUDJPY is trading near the breakout level lower.
Chart: EURJPY
We add EURJPY to the watchlist as the pair has pushed to a new local low – though the critical range low is a bit lower still around 124.00. Further risk-off could favour the JPY more than the USD, judging from the price action of the last few sessions.
We add EURJPY to the watchlist as the pair has pushed to a new local low – though the critical range low is a bit lower still around 124.00. Further risk-off could favour the JPY more than the USD, judging from the price action of the last few sessions.
Chart: EURSEK
At the bottom of the heap today in G10 FX are the Scandies, apparently taking their lead from the ECB implications on their own central banks’ ability to normalise. Weak risk appetite is likely another immediate driver. EURSEK is rapidly running out of range ahead of the 10.729 top from last August (and the highest daily close back then was south of 9.70).
At the bottom of the heap today in G10 FX are the Scandies, apparently taking their lead from the ECB implications on their own central banks’ ability to normalise. Weak risk appetite is likely another immediate driver. EURSEK is rapidly running out of range ahead of the 10.729 top from last August (and the highest daily close back then was south of 9.70).
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.
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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