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John J. Hardy
Global Head of Macro Strategy
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FX Breakout Monitor: Risk-off rally boosts CHF, JPY
John J. Hardy
Global Head of Macro Strategy
Summary: The latest daily direction change in risk appetite arrived on schedule at today's European bell with weakening sentiment dragging JPY and CHF higher.
Trading ranges remain muted, perhaps as the overall USD outlook remains anchored by the assumption that the USDCNY cap around 7.00 will hold for now. Nonetheless, the fresh bout of weak risk appetite was a sharp change of direction from yesterday and the JPY and CHF are responding to the signal.
The CHF is getting a bit of extra help from fresh European existential concerns raised by Italian Interior Minister Matteo Salvini delivering a fresh dose of defiant rhetoric on violating EU budget rules and Italian yields stretching to their widest levels versus core EU yields this year, all amidst the active countdown into the EU elections starting in eight days (May 23-26).
Breakout signal tracker
Our fresh AUDUSD short signal from yesterday is finding marginal progress lower with a key test ahead tonight on the Australian April jobs data in tonight’s Asian session. We would like to add a USDCAD long position, but would like to see the USD make a broader statement into a daily closing level above the prior range.
The CHF is getting a bit of extra help from fresh European existential concerns raised by Italian Interior Minister Matteo Salvini delivering a fresh dose of defiant rhetoric on violating EU budget rules and Italian yields stretching to their widest levels versus core EU yields this year, all amidst the active countdown into the EU elections starting in eight days (May 23-26).
Breakout signal tracker
Our fresh AUDUSD short signal from yesterday is finding marginal progress lower with a key test ahead tonight on the Australian April jobs data in tonight’s Asian session. We would like to add a USDCAD long position, but would like to see the USD make a broader statement into a daily closing level above the prior range.
Today’s FX Breakout monitor
Page 1: The GBP breakdown is the most notable development over the last couple of sessions, with GBPUSD also looking at a new 49-day low today. The heavy JPY crosses also stick out here, and so does the EURCHF breakdown – EURUSD coming under pressure makes USDCHF look a bit less compelling, as does the chart setup. Note USDCAD on the cusp, yet again, of a breakout attempt to the upside.
Page 1: The GBP breakdown is the most notable development over the last couple of sessions, with GBPUSD also looking at a new 49-day low today. The heavy JPY crosses also stick out here, and so does the EURCHF breakdown – EURUSD coming under pressure makes USDCHF look a bit less compelling, as does the chart setup. Note USDCAD on the cusp, yet again, of a breakout attempt to the upside.
Page 2: mostly an extension of existing trends here, though USD/G10 smalls pressure is also in focus with USDNOK and USDSEK eyeing new cycle highs if the USD follows through higher. The outlook for gold is also critical after the recent rally move we pointed out earlier this week.
Chart: GBPUSD
Cable breakdown looking more impressive as the pair has also taken out the 49-day lows and EURGBP is also seeing a break higher. The next level of note to the downside doesn’t really come in until the 1.2500 area.
Cable breakdown looking more impressive as the pair has also taken out the 49-day lows and EURGBP is also seeing a break higher. The next level of note to the downside doesn’t really come in until the 1.2500 area.
Chart: USDCAD
Volatility is extremely compressed in USDCAD, with the most compressed daily trading range since 2014, but we still look for the potential of a break higher here above 1.3500 on a daily close to unleash the potential higher.
Volatility is extremely compressed in USDCAD, with the most compressed daily trading range since 2014, but we still look for the potential of a break higher here above 1.3500 on a daily close to unleash the potential higher.
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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