FX Breakout Monitor: Risk sentiment reverses again FX Breakout Monitor: Risk sentiment reverses again FX Breakout Monitor: Risk sentiment reverses again

FX Breakout Monitor: Risk sentiment reverses again

Forex 5 minutes to read
John J. Hardy

Head of FX Strategy

Summary:  Friday’s ugly session for equities and risk-correlated currencies has yielded to a swift change of direction yesterday and especially today, with the JPY going from strength to weakness and AUD and NZD poking up at breakout levels.


For a PDF copy of this edition, click here.

Currency traders are suffering a case of whiplash as JPY crosses are reversing hard back to the upside (catching our USDJPY short position the wrong way around and completing a string of ugly reversals for most USD breakout trades). Elsewhere, renewed strength in risk appetite is seeing AUD and NZD on the verge of breaking higher versus the US dollar and already breaking higher versus the sideways euro.

We follow the EURAUD downside breakout ahead of today’s close, sensing that the sudden change in risk on could be the beginning of a reassessment of the dovish Federal Reserve (read: not continuing to favour the knee-jerk celebration last week of the Fed bringing back the policy punchbowl by abandoning QT and eliminating rate hike guidance).

Breakout signal tracker

This morning, we talked about reducing USDJPY shorts by half and we will now take off the remainder as well, given the price action today and complete lack of follow-through of the price action from Friday’s weak close in JPY crosses (note AUDJPY for example). We add a EURAUD short at current market levels.
Source: Saxo Bank
Today’s FX Breakout monitor

Page 1: JPY crosses are reversing hard from Friday’s strength and AUD is already breaking higher versus the EUR and USD today if it closes at current levels or stronger. We like the technical setup of the NZDUSD break higher, but we’re hesitant to jump in until we have a look at tonight’s Reserve Bank of New Zealand meeting.
Source: Saxo Bank
Page 2: EURSEK is breaking lower again – this could extend on the assumption that risk appetite remains strong as smaller currencies all stand to benefit. The same goes for EURNOK, especially if oil participates in hopes that growth will respond to the world’s accommodative policy makers and hopes of improving USD liquidity on the Fed’s coming tapering of QT.
Source: Saxo Bank
Chart: EURAUD

A weak close today in EURAUD could set up a considerable run lower here on the hope that the global growth outlook will improve on Chinese stimulus and more accommodative central bank policy. Note the 200-day moving average and levels slightly lower that have been in play so many times this year. AUDUSD has been in a tight congest range as well, A significant further melt-up in risk appetite could set the tone for a significant move lower toward the sub-1.5400 lows from late last year.
EURAUD
Source: Saxo Bank
Chart: EURSEK

EURSEK having a look lower in what looks like a broadening theme of smaller currencies rising against the G3 currencies, a theme that could strengthen if we go from perceiving the risk sentiment improvement as merely being a bounce-back to becoming an outright melt-up. Any improvement in activity numbers in Europe could add fuel for downside potential.
EURSEK
Source: Saxo Bank
Chart: AUDJPY

AUDJPY showing some of the highest energy in turning from Friday’s weak session as the AUD and JPY stretch in opposite directions; a mere few sessions after registering a downside breakout, this pair is staring down an upside breakout. Watching for further development potential if the big AUDUSD sticks higher as well.
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.

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.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.