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: September 7, 2020
John J. Hardy
Chief Macro Strategist
Summary: Even as equity markets gyrate wildly, most major FX pairs remain bottled up in their ranges, although things are stirring around the edges as sterling has weakened suddenly again on taking a hard line on Brexit and the US dollar is pressing hard enough to edge closer to breakout levels in at least two G10 pairings and in USDRUB.
Today’s Potential New Breakout Signals
Today we highlight five potential breakouts in progress that could maintain interest into today’s close of trade. Of these, USDRUB is actively in breakout if it closes at the current level, as is GBPAUD, which has poked to new lows intraday. EURSEK is also close to a breakout level and USDCHF likewise. It is worth noting that US markets are closed today, so volatility may edge lower toward the end of the European session today.
Table: Five potential breakouts today and methods for trading
Note that the stops for the example entry levels are a bit more than 1 ATR from the example entry level (trade size or stop level may need adjusting depending on entry level to reduce risk). These are not trade recommendations, rather examples for how to trade the breakouts. Exit date is simply nine days after trade entry, but 7-9 days is a rule of thumb for holding period and can be shorter still as stops should be partially trailed once a trade moves significantly into profit.
Chart highlight: USDRUB
UDSRUB has pulled clear of the range in today’s trade and is at a new high for the local cycle on weakness in oil prices and concerns of sanctions on accusations from Germany surrounding the poisoning of opposition leader Navalny and possibly even on Russian activities in Belarus on the post-election unrest there. The only real resistance area left on the chart is toward the spike highs during the initial Covid-10 panic toward 80.00.
Chart highlight: GBPAUD
The sterling weakness, in part due to the UK taking a hard line and setting a mid-October deadline for reaching a deal while some legislators are looking to override a portion of the withdrawal agreement linked to the risk of a customs border between Northern Ireland and the Republic of Ireland. GBPUSD has reversed the recent rally badly and EURGBP is zooming back higher, but GBPAUD (and GBPCAD) have been the first pairs to show sterling fully breaking to new local lows beyond the 19-day closing level.
Table: Today’s Breakout Monitor
The breakout monitor below offers an overview of recent daily breakouts (a close above or below the prior 19-day highs or lows and 49-day highs and lows to give an indication of whether it there is also a medium term development). Note the new low close for the cycle on Friday in USDMXN, a USD/EM pair we highlighted on Thursday last week for a potential break – it is trading right on its 200-day moving average and in a very different place from USDRUB (discussed above).
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