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...
FX Breakout Monitor: Sterling on the brink
John J. Hardy
Chief Macro Strategist
Summary: Sterling eyes fresh lows nearly across the board on uncertainty over the Brexit endgame.
Click here for the full FX Breakout Monitor report.
Today presents a potpourri of new developments with no unifying theme. We have weak silver (and somewhat weak gold) and a weak ZAR on the one hand, while sterling is also soft and the Scandies continue to show resilience. The most across-the-board strength earlier today was in the Japanese yen, but this signal weakened later in the day as risk appetite improved from earlier weakness, though we are still at or near breakout lows in many JPY crosses, including EURJPY (see chart below).
The USD continues to stagger randomly, depending on the exchange rate in focus.
Breakout signal tracker
We will not add any new signals to the tracking list today, but have some interest in adding a USDCAD if the Bank of Canada sends a dovish signal tomorrow and the pair closes north of 1.3500.
Today presents a potpourri of new developments with no unifying theme. We have weak silver (and somewhat weak gold) and a weak ZAR on the one hand, while sterling is also soft and the Scandies continue to show resilience. The most across-the-board strength earlier today was in the Japanese yen, but this signal weakened later in the day as risk appetite improved from earlier weakness, though we are still at or near breakout lows in many JPY crosses, including EURJPY (see chart below).
The USD continues to stagger randomly, depending on the exchange rate in focus.
Breakout signal tracker
We will not add any new signals to the tracking list today, but have some interest in adding a USDCAD if the Bank of Canada sends a dovish signal tomorrow and the pair closes north of 1.3500.
Today’s FX Breakout monitor
Page 1: EURJPY is looking at new cycle lows today and USDJPY is not far away. USDCAD is looking the other way ahead of the BoC meeting tomorrow (incredible bottling up of that pair lately). Elsewhere, EURGBP has eyed local highs again today after only a brief respite over May’s downfall. GBPUSD is almost at a new low close as well – potentially opening up for 1.2500.
Page 1: EURJPY is looking at new cycle lows today and USDJPY is not far away. USDCAD is looking the other way ahead of the BoC meeting tomorrow (incredible bottling up of that pair lately). Elsewhere, EURGBP has eyed local highs again today after only a brief respite over May’s downfall. GBPUSD is almost at a new low close as well – potentially opening up for 1.2500.
Page 2: the Scandies are making their presence felt on the upside after a long run lower recently – it will take some more doing for a more compelling upside breakout in the EURSEK and EURNOK pairs to the downside. USDZAR is looking at key resistance today as we discuss below and XAGUSD continues to grind lower, though every new low for the last few weeks has seen considerable backfilling.
Chart: EURJPY
The JPY remains on the strong side, though it has eased off its strength from earlier in the day as risk sentiment improved. German yields touched a new low for the cycle today below -15 basis points (only 5 bps from the all time lows). It is clear that the yen needs strong safe-haven seeking to thrive.
The JPY remains on the strong side, though it has eased off its strength from earlier in the day as risk sentiment improved. German yields touched a new low for the cycle today below -15 basis points (only 5 bps from the all time lows). It is clear that the yen needs strong safe-haven seeking to thrive.
Chart: USDZAR
USDZAR perched near cycle highs and widening risk spreads in EM are the likely driver; the risk is for a move higher still on a break after the recent election failed to sustain a hopeful ZAR bid.
USDZAR perched near cycle highs and widening risk spreads in EM are the likely driver; the risk is for a move higher still on a break after the recent election failed to sustain a hopeful ZAR bid.
Chart: USDZAR
Emerging market currencies have taken the USD strength reasonably in stride lately, but USDZAR has bounced back today and is looking at the highs for the cycle again – we mark both the 19-day and 49-day highs here.
Emerging market currencies have taken the USD strength reasonably in stride lately, but USDZAR has bounced back today and is looking at the highs for the cycle again – we mark both the 19-day and 49-day highs here.
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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