Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
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FX Breakout Monitor: USD resurgent, CHF and smalls wilt
John J. Hardy
Chief Macro Strategist
Summary: The US dollar has rediscovered a modest bid today in the wake of yesterday’s FOMC minutes. The Swiss franc, meanwhile, has weakened sharply, possibly as safe haven bids linked to Brexit have faded after news of the long delay to the UK's departure from the EU.
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The US dollar found buyers today after shrugging off the Federal Open Market Committee minutes last night, which largely merely confirmed the Fed’s intent to stand pat on the rate outlook until incoming data and/or market turbulence indicate otherwise.
The anticipation and now reality of a long Brexit delay has seen collapsing implied volatility for sterling options and the sharp weakening of the Swiss franc in recent sessions may be linked to the same phenomenon.
We highlight the USDCHF trading at new 19-day highs since yesterday in our signal tracker today. Elsewhere, we’re more interested in adding to USD longs in the form of a NZDUSD short if that pair trades below the 19-day and 49-day low closes, which are in play already today.
Breakout signal tracker
With G10 small currencies offered today and a suddenly resurgent US dollar, our confidence in the EURNOK short has dropped sharply, but we’ll leave it in place for now. We also add a USDCHF long at the current market price with a rather wide stop in ATR terms due to very constricted recent trading ranges.
The US dollar found buyers today after shrugging off the Federal Open Market Committee minutes last night, which largely merely confirmed the Fed’s intent to stand pat on the rate outlook until incoming data and/or market turbulence indicate otherwise.
The anticipation and now reality of a long Brexit delay has seen collapsing implied volatility for sterling options and the sharp weakening of the Swiss franc in recent sessions may be linked to the same phenomenon.
We highlight the USDCHF trading at new 19-day highs since yesterday in our signal tracker today. Elsewhere, we’re more interested in adding to USD longs in the form of a NZDUSD short if that pair trades below the 19-day and 49-day low closes, which are in play already today.
Breakout signal tracker
With G10 small currencies offered today and a suddenly resurgent US dollar, our confidence in the EURNOK short has dropped sharply, but we’ll leave it in place for now. We also add a USDCHF long at the current market price with a rather wide stop in ATR terms due to very constricted recent trading ranges.
Today’s FX Breakout monitor
Page 1: USDCHF is extending fairly aggressively higher as CHF makes a rare show of multiple days of trading in the same direction (weaker). The AUDUSD break higher yesterday, meanwhile, is already on the ropes today as a close near 0.7100 would keep bulls sitting on their hands. We focus below on the NZDUSD setup for a break lower, now that the USD is firming again.
Page 1: USDCHF is extending fairly aggressively higher as CHF makes a rare show of multiple days of trading in the same direction (weaker). The AUDUSD break higher yesterday, meanwhile, is already on the ropes today as a close near 0.7100 would keep bulls sitting on their hands. We focus below on the NZDUSD setup for a break lower, now that the USD is firming again.
Page 2: No good follow through lower for EURNOK today, perhaps held back to a degree by EURSEK failing to follow suit in the wake of Sweden’s CPI release today. Note the precious metals are trading a bit heavy again to say the least, especially silver at that 15.00 area.
Chart: USDCHF
Always tough to trade a new “breakout” that is within the range, but given a bit of momentum in CHF weakness after a key event risk (Brexit extension) and the USD perking up, we’ll follow this one with interesting, though the obvious bigger level is that top of the cycle area above 1.0100.
Always tough to trade a new “breakout” that is within the range, but given a bit of momentum in CHF weakness after a key event risk (Brexit extension) and the USD perking up, we’ll follow this one with interesting, though the obvious bigger level is that top of the cycle area above 1.0100.
Chart: NZDUSD
Very interested in tracking a possible breakout lower here due to the clarity of the range and the sense that NZD has turned the corner lower in broad terms as it finds itself under the Aussie’s thumb. Next major level lower is really the 0.6500 zone.
Very interested in tracking a possible breakout lower here due to the clarity of the range and the sense that NZD has turned the corner lower in broad terms as it finds itself under the Aussie’s thumb. Next major level lower is really the 0.6500 zone.
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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