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: Commodity dollars breaking down
John J. Hardy
Chief Macro Strategist
Summary: The commodity dollars are on the defensive again after a weak GDP print from Australia and on fears that the Bank of Canada will wax more dovish today. Elsewhere, we await tomorrow’s ECB meeting for signs of life in EURUSD and when the long established range will fall.
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Plenty of focus now on AUD crosses that we have also looked at in recent trading sessions after a weak Q4 GDP print overnight that took short Australian rates close to the lows for the cycle. The AUDUSD has broken to a new local low and momentum looks reasonably compelling as we discuss below, but the obvious chart focus is a bit lower still around the pivotal 0.7000 level and China’s maintenance of a firm CNY brakes the potential for more downside at the margin.
USDCAD is in a similar place as AUDUSD ahead of today’s Bank of Canada statement (which will be out before this article reaches pixel time). The highs for the cycle there still some 2% above recent highs and this local break will hinge on the reaction to the BoC statement.
Breakout signal tracker
Our most recent signal to track – the EURGBP downside breakout – was stopped out as nervousness settles in ahead of key parliamentary votes next week linked to Brexit.
Plenty of focus now on AUD crosses that we have also looked at in recent trading sessions after a weak Q4 GDP print overnight that took short Australian rates close to the lows for the cycle. The AUDUSD has broken to a new local low and momentum looks reasonably compelling as we discuss below, but the obvious chart focus is a bit lower still around the pivotal 0.7000 level and China’s maintenance of a firm CNY brakes the potential for more downside at the margin.
USDCAD is in a similar place as AUDUSD ahead of today’s Bank of Canada statement (which will be out before this article reaches pixel time). The highs for the cycle there still some 2% above recent highs and this local break will hinge on the reaction to the BoC statement.
Breakout signal tracker
Our most recent signal to track – the EURGBP downside breakout – was stopped out as nervousness settles in ahead of key parliamentary votes next week linked to Brexit.
Today’s FX Breakout monitor
Page 1: USDCAD is higher after having broken out yesterday – key BoC meeting today determines whether break holds. AUDUSD also mulling a break today to the downside, as is AUDNZD (once again!). AUD and CAD weakness also showing up in the crosses.
Page 1: USDCAD is higher after having broken out yesterday – key BoC meeting today determines whether break holds. AUDUSD also mulling a break today to the downside, as is AUDNZD (once again!). AUD and CAD weakness also showing up in the crosses.
Page 2: TRY the only EM currency to string together a series of new lows versus the USD in recent days – some heavy carry in that pair to lean against, but a bigger move today in the wake of the Turkish central bank’s rate decision. Gold is mulling new lows here and note the bigger break level a bit lower discussed in the chart below.
Chart: AUDUSD
We are looking at fresh 19-day lows today, but the bigger key is the cycle low close just below 0.7000 and whether the broader US picture continues to support the downside view here.
We are looking at fresh 19-day lows today, but the bigger key is the cycle low close just below 0.7000 and whether the broader US picture continues to support the downside view here.
Chart: XAUUSD (spot gold)
Some fresh 19-day lows over the last couple of session on a rather brutal move lower – the bigger level looks like the $1,275 area and the actual 49-day low comes in around there as well – stay tuned – a strong US jobs report and a fresh treasury sell-off combined with USD strength the most potent possible combination for USD downside.
Some fresh 19-day lows over the last couple of session on a rather brutal move lower – the bigger level looks like the $1,275 area and the actual 49-day low comes in around there as well – stay tuned – a strong US jobs report and a fresh treasury sell-off combined with USD strength the most potent possible combination for USD downside.
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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