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: USD picture stays muddy after US jobs report
John J. Hardy
Chief Macro Strategist
Summary: The USD weakness in the wake of the FOMC meeting fizzled a bit into today’s trading and the US jobs report hasn’t done much to clarify the situation as we await the daily and weekly close levels and look forward to a busy week for AUD on Tuesday’s RBA meeting.
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The USD picture is clear as mud at the moment – with recent commodity dollar breakouts versus the greenback not seeing further progression today and USD/EM trade consolidating after their recent big run lower. The US jobs report today was rather positive, with a new five-year high in the participation rate (long time unemployed returning to the work force) and payrolls beat, although earnings growth was a bit more sluggish than expected.
Next week could prove pivotal for the Aussie, with a Reserve Bank of Australia meeting up on Tuesday and the market very curious whether the bank will alter its guidance in recognition of rapidly falling Australian housing prices. Still, with Aussie and elsewhere, the risk for low energy levels in EM is prominent if the market is taking its cue from China, as markets there are closed all week for the New Year holiday, and as we continue to wait for the outcome of US-China trade negotiations.
Today’s FX Breakout monitor
Page 1: The big JPY crosses continue to avoid sending clear break signals as USDJPY bounced after the initial sell-off in the wake of the Federal Open Market Committee meeting and EURJPY can’t decide what to do around 125.00. NZDUSD, AUDUSD and USDCAD all broke out this week – watching the close today and action early next week to see if these amount to anything or are rejected.
The USD picture is clear as mud at the moment – with recent commodity dollar breakouts versus the greenback not seeing further progression today and USD/EM trade consolidating after their recent big run lower. The US jobs report today was rather positive, with a new five-year high in the participation rate (long time unemployed returning to the work force) and payrolls beat, although earnings growth was a bit more sluggish than expected.
Next week could prove pivotal for the Aussie, with a Reserve Bank of Australia meeting up on Tuesday and the market very curious whether the bank will alter its guidance in recognition of rapidly falling Australian housing prices. Still, with Aussie and elsewhere, the risk for low energy levels in EM is prominent if the market is taking its cue from China, as markets there are closed all week for the New Year holiday, and as we continue to wait for the outcome of US-China trade negotiations.
Today’s FX Breakout monitor
Page 1: The big JPY crosses continue to avoid sending clear break signals as USDJPY bounced after the initial sell-off in the wake of the Federal Open Market Committee meeting and EURJPY can’t decide what to do around 125.00. NZDUSD, AUDUSD and USDCAD all broke out this week – watching the close today and action early next week to see if these amount to anything or are rejected.
Page 2: Finally a bit of consolidation in the USD/EM trades – wondering if the energy there ebbs out next week after a strong bounce in USDCNY today. EURSEK recently poked above key resistance but has yet to extend, while NOKSEK has pulled sharply higher and was a great breakout/trending trade that is now getting a bit stretched and looking at the 200-day moving average.
Chart: USDCAD
We haven’t covered USDCAD recently, which has broken lower in line with the breaks (higher) in AUDUSD and NZDUSD – clearly a lot of correlation in these pairs at the moment on hopes that the recent FOMC will provide a fillip for global risk sentiment and even economic growth. The pair have managed to trade up against the 200-day moving average today and even below – which also coincides with the 61.8% retracement level of the rally wave since last October. So this level important on daily closes from here. Looking lower, structurally speaking, the 1.3000 looks pivotal as the pair will likely take its cue from risk appetite, with USD weakness on further strength in global equity markets.
We haven’t covered USDCAD recently, which has broken lower in line with the breaks (higher) in AUDUSD and NZDUSD – clearly a lot of correlation in these pairs at the moment on hopes that the recent FOMC will provide a fillip for global risk sentiment and even economic growth. The pair have managed to trade up against the 200-day moving average today and even below – which also coincides with the 61.8% retracement level of the rally wave since last October. So this level important on daily closes from here. Looking lower, structurally speaking, the 1.3000 looks pivotal as the pair will likely take its cue from risk appetite, with USD weakness on further strength in global equity markets.
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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