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FX Breakout Monitor September 12 2019

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  The FX Breakout Monitor shows risk-on currencies trying to make a break for it against the euro single currency in recent sessions ahead of today’s ECB meeting, a pivotal event risk. Will Draghi and company encourage this development or disappoint expectations for a strong new easing programme?

The FX Breakout Monitor is back, and it is expanded with "autosignals" that show examples of how to trade new breakouts, defined as new 19-day high or low closes not preceded by a breakout in the same direction in the prior week.

Chart highlight of potential new signal: NZDUSD
NZDUSD is eyeing a new 19-day high close today if it closes above the 0.6426 level. Note that the signal isn’t “valid” unless the pair is above that level at the close of trading. Also note that the trend reading is still 0, meaning that the trend measurement algorithm has not yet switched positive. On the chart below, it is easy to spot why NZDUSD has not yet registered an uptrend, because this latest move comes in the wake of a very powerful down-move, requiring a bit more time before an uptrend can be established. The prior major low of 0.6500 is a key hurdle as well – but stay tuned as NZDUSD has clearly risen to levels where the bear trend becomes neutralized if the rally persists from here.

Source: Saxo Bank

REFERENCE: FX Breakout Monitor overview explanations

The following is a left-to-right, column by column explanation of the FX Breakout Monitor tables.

Quote: the latest price at the time the monitor was generated.

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 for each pair. 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: These columns indicate whether a breakout to the upside or downside may be unfolding today (if the price action at the time of the scan is below or above the 19-day or 49-day high/low, a coloured “X” appears in the Today column) or has occurred in recent days. For the 49-day breakouts, we only show today, yesterday and whether a breakout has occurred in the prior week (indicated “PW”) This graphic indication offers an easy way to see whether a breakout is new or one of a series of a continuation signals from a prior breakout. 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 shaded yellow if getting close to registering a breakout. NOTE: although the Today column may show a breakout in action – an “X”, the breakout signal is only valid if it survives the daily closing level indicated as the breakout level (i.e., intraday breakouts will not be registered for the prior days).

Page 3 and 4: This is a list of most recent "auto-signal" for all instruments covered in FX Breakout Monitor. A breakout signal (19-day only) qualifies if it is the first signal in five trading days. The entry date is the day on which the pair registered a breakout on the close-of-day basis. The entry price is assumed to be the price on close for that day. The assumed stop is 1.05 ATR from the entry price and the  exit day is nine trading days later, assuming a stop-out has not occurred in the interim (date of stop-out not shown, but is shown in the P&L calculation). Note that the P&L calculation is a multiple of the distance to the stop, so a gain of 1.05 ATR (the same as the distance to the stop from the entry price) shows up as a P&L of 1, just as a stop-out registers as a -1. This normalizes P&L to the amount risked, regardless of the underlying instrument's volatility. Important: carry not included in P&L calculations and can be substantial for some EM currencies in particular. Note that the maximum DrawUp is included for perspective and is shown in as multiples of the distance to the stop, just as for the P&L calculations.


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