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: GBP the momentum trade of the week
John J. Hardy
Chief Macro Strategist
Summary: Sterling, AUDZND, EURNOK and EURCHF in focus today.
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Sterling was the clear momentum trade this week, though it has paused today as we await key further developments over the next seven trading days. Elsewhere, we’ve seen teases from EURNOK, AUDNZD and EURCHF, without notable follow-through just yet.
After its very strong run, sterling ran into some resistance after GBPUSD hit 1.3000 as the market guns for a Brexit reversal or at least an extension of Article 50. Elsewhere, the other breakout candidates we have discussed in recent days have teased through key levels but have yet to follow through – more below on that.
Among these, NOK could get interesting next week on Norges Bank and euro volatility could pick up on the European Central Bank meeting after the recent rhetorical shift to the downside. As for AUDNZD, which has paused today after breaking a key level yesterday, momentum traders will likely get an answer over New Zealand CPI data Wednesday and Australia’s employment data the following day.
Sample trade: AUDNZD long
On AUDNZD’s close at a new 19-day high and above the prior pivot level, a straightforward way to trade the development is a long position around 1.0625 with a stop at perhaps 1.0545 (about 1.2 ATR), holding for seven to nine trading days or until the price rises above 1.0800, and trailing the stop about 1.2 ATR from any new high low closes.
Today’s FX Breakout monitor
Page 1: Sterling stopped its run of higher closes today, but remains well free of former resistance as we await developments starting on Monday with Prime Minister Theresa May’s presentation of her "Plan B". Elsewhere, the EURCHF breakout is pushing for momentum, but this could be linked to Brexit headline risks and the euro faces a key test next week over the ECB meeting.
USDCHF, meanwhile, is perched near a new 19-day high, though one without pronounced technical significance. AUDNZD remains an interesting breakout candidate, as we have discussed.
Sterling was the clear momentum trade this week, though it has paused today as we await key further developments over the next seven trading days. Elsewhere, we’ve seen teases from EURNOK, AUDNZD and EURCHF, without notable follow-through just yet.
After its very strong run, sterling ran into some resistance after GBPUSD hit 1.3000 as the market guns for a Brexit reversal or at least an extension of Article 50. Elsewhere, the other breakout candidates we have discussed in recent days have teased through key levels but have yet to follow through – more below on that.
Among these, NOK could get interesting next week on Norges Bank and euro volatility could pick up on the European Central Bank meeting after the recent rhetorical shift to the downside. As for AUDNZD, which has paused today after breaking a key level yesterday, momentum traders will likely get an answer over New Zealand CPI data Wednesday and Australia’s employment data the following day.
Sample trade: AUDNZD long
On AUDNZD’s close at a new 19-day high and above the prior pivot level, a straightforward way to trade the development is a long position around 1.0625 with a stop at perhaps 1.0545 (about 1.2 ATR), holding for seven to nine trading days or until the price rises above 1.0800, and trailing the stop about 1.2 ATR from any new high low closes.
Today’s FX Breakout monitor
Page 1: Sterling stopped its run of higher closes today, but remains well free of former resistance as we await developments starting on Monday with Prime Minister Theresa May’s presentation of her "Plan B". Elsewhere, the EURCHF breakout is pushing for momentum, but this could be linked to Brexit headline risks and the euro faces a key test next week over the ECB meeting.
USDCHF, meanwhile, is perched near a new 19-day high, though one without pronounced technical significance. AUDNZD remains an interesting breakout candidate, as we have discussed.
Page 2: EURNOK pushing lower again today and the recent USDRUB remains in play, if failing to add on the momentum lower just yet.
Chart: EURCHF
Fairly straightforward stuff here in technical terms if we get a better break higher as the previous pivot level hasn’t really fallen with the new highs of the last couple of days. Headline risks from Brexit next week are a two-way risk for the pair, as are risks from the ECB, although we are cautious on EUR longs on the risk that the ECB guidance could come in more dovish – one to watch.
Fairly straightforward stuff here in technical terms if we get a better break higher as the previous pivot level hasn’t really fallen with the new highs of the last couple of days. Headline risks from Brexit next week are a two-way risk for the pair, as are risks from the ECB, although we are cautious on EUR longs on the risk that the ECB guidance could come in more dovish – one to watch.
Chart: EURNOK
EURNOK aiming at a new low close today and has worked its way through the 9.75 pivot area – bears will want risk appetite and oil prices to remain elevated next week to see another leg lower that opens up the range to 9.50 and beyond.
EURNOK aiming at a new low close today and has worked its way through the 9.75 pivot area – bears will want risk appetite and oil prices to remain elevated next week to see another leg lower that opens up the range to 9.50 and beyond.
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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