Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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FX Breakout Monitor: A near-clean sweep for the dollar
John J. Hardy
Chief Macro Strategist
Summary: EURUSD blasted lower yesterday for its lowest close in almost two years, further cementing the recent USD surge. Elsewhere, emerging market currencies are coming under further pressure, the bottom has dropped out of SEK and the JPY is breaking higher in places.
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The US dollar made a near-clean sweep of breaking higher yesterday, with only the Japanese yen able to put up an overnight fight against the hard-charging greenback. The most notable recent development was the EURUSD breakdown below 1.1200 and the nominal lows beneath that level, taking the benchmark pair to its lowest rate since the early summer of 2017.
Elsewhere, SEK was mauled by a dovish Riksbank that delayed guidance on the timing of the next rate hike and JPY has now sustained sufficient strength to close higher versus GBP and AUD if current market levels hold.
Breakout signal tracker
We are adding a EURUSD short today after yesterday’s break lower. Because this would merely approximately double up our existing USDSEK long (we are already long EURSEK), we’ll remove the existing USDSEK after the impressive move that delivered more than 2.5 times the risk to the stop on the signal.
The US dollar made a near-clean sweep of breaking higher yesterday, with only the Japanese yen able to put up an overnight fight against the hard-charging greenback. The most notable recent development was the EURUSD breakdown below 1.1200 and the nominal lows beneath that level, taking the benchmark pair to its lowest rate since the early summer of 2017.
Elsewhere, SEK was mauled by a dovish Riksbank that delayed guidance on the timing of the next rate hike and JPY has now sustained sufficient strength to close higher versus GBP and AUD if current market levels hold.
Breakout signal tracker
We are adding a EURUSD short today after yesterday’s break lower. Because this would merely approximately double up our existing USDSEK long (we are already long EURSEK), we’ll remove the existing USDSEK after the impressive move that delivered more than 2.5 times the risk to the stop on the signal.
Today’s FX Breakout monitor
Page 1: the USD surge is a clean sweep across the board save for USDJPY, which poked above 112.00 yesterday before reversing sharply overnight. Indeed, the yen is quite the holdout and is even pushing against breakout levels to the upside versus the euro (downside EURJPY break). USDCAD enthusiastically enjoyed the strong USD parade yesterday on the dovish Bank of Canada guidance. Elsewhere, and nonetheless, we are interested in the prospects for a downside break in AUDCAD and maybe even GBPCAD.
Page 1: the USD surge is a clean sweep across the board save for USDJPY, which poked above 112.00 yesterday before reversing sharply overnight. Indeed, the yen is quite the holdout and is even pushing against breakout levels to the upside versus the euro (downside EURJPY break). USDCAD enthusiastically enjoyed the strong USD parade yesterday on the dovish Bank of Canada guidance. Elsewhere, and nonetheless, we are interested in the prospects for a downside break in AUDCAD and maybe even GBPCAD.
Page 2: Note that AUDJPY and GBPJPY are mulling downside breaks for the 19-day horizon. As well, we saw strong confirmation of the recent SEK downside breakouts on a very dovish message from the Riksbank today. And among EM currencies, Asian EM FX continues to trade lower versus the US dollar, USDMXN is close to a 19-day high close and USDZAR is nearing a new 49-day high close.
Chart: EURUSD
The most obvious focus today is on EURUSD as it enthusiastically participated in the strong USD story by clearing all prior lows. Naturally, traders will remain nervous here, as prior attempts at major and minor range breaks have all failed to generated further directional momentum, but the trend/momentum trader’s job is to trade the signals, and yesterday provided one.
Some next steps lower could include the big round 1.1000 area and then the 1.0865 level (i.e. the 76.4% Fibonacci retracement of the entire move from the early 2017 lows below 1.0350 to the 2018 high of 1.2555).
The most obvious focus today is on EURUSD as it enthusiastically participated in the strong USD story by clearing all prior lows. Naturally, traders will remain nervous here, as prior attempts at major and minor range breaks have all failed to generated further directional momentum, but the trend/momentum trader’s job is to trade the signals, and yesterday provided one.
Some next steps lower could include the big round 1.1000 area and then the 1.0865 level (i.e. the 76.4% Fibonacci retracement of the entire move from the early 2017 lows below 1.0350 to the 2018 high of 1.2555).
Chart: USDCAD
USDCAD joined the strong-dollar parade as dovish BoC guidance eliminated the rate hike bias and sent short CAD yields tumbling. Not much room remains to the top of the trading range into 1.3650-plus, but a bigger move could be afoot if crude oil prices reverse their recent torrid pace.
USDCAD joined the strong-dollar parade as dovish BoC guidance eliminated the rate hike bias and sent short CAD yields tumbling. Not much room remains to the top of the trading range into 1.3650-plus, but a bigger move could be afoot if crude oil prices reverse their recent torrid pace.
Chart: GBPCAD
Sterling versus CAD (we will also investigate the likely more volatile GBPJPY) is an interesting pair for those seeking isolated sterling weakness on a weak UK credit impulse and the drag from Brexit uncertainty. We would also note the clear range level, even if this isn’t a sterling pair on most GBP traders’ radars.
Sterling versus CAD (we will also investigate the likely more volatile GBPJPY) is an interesting pair for those seeking isolated sterling weakness on a weak UK credit impulse and the drag from Brexit uncertainty. We would also note the clear range level, even if this isn’t a sterling pair on most GBP traders’ radars.
Chart: AUDJPY
The JPY strength has picked up sufficiently that breaks are beginning to unfold in JPY crosses – among these, AUDJPY locally (a new, 19-day low close in play today) but potentially on a longer-term basis over the coming sessions after this week's soft Australia CPI release took AUD sharply lower.
The JPY strength has picked up sufficiently that breaks are beginning to unfold in JPY crosses – among these, AUDJPY locally (a new, 19-day low close in play today) but potentially on a longer-term basis over the coming sessions after this week's soft Australia CPI release took AUD sharply lower.
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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