Head of FX Strategy
Summary: The recent slow slide in sterling took on considerable energy today as noise from both the UK and EU side show no progress and Boris Johnson and his team seem willing to trigger a No Deal Brexit in defiance of Parliament. Elsewhere, the risk-off from the spike in Brexit concerns is hitting EM and the Scandies are also on the defensive with new breakouts lower versus the euro.
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. Click on the link below for a look at the full PDF of the table overview and the Recent New Breakouts tables. See further below for a couple of chart highlights related to today's monitor.
Today’s Breakout monitor
We’re picking up a bit more energy around the edges of the Breakout Monitor in recent days, as the Scandies (SEK and NOK) have been taken to new 19-day lows versus the Euro and EURSEK closed at a new multi-year high for the cycle yesterday. And today, if sterling closes near where it is trading as of this writing, it will have also cleared a new 19-day low versus the euro and the yen that could prove the start of a significant breakdown.
The US dollar continues to keep its intentions unknown. USDCAD broke back higher recently, as we pointed out, nominally posting a new 19-day high, but so far having failed to clear the range. Elsewhere, the USD picture is generally muddled, though today we did see a significant move lower in EM as the sudden aggravation of Brexit worries and a headline that the White House is looking to eliminate Chinese stocks from government funds (federal pension funds?) doesn’t look like a good sign ahead of US-China talks set to start on Thursday. EM weakness was led by a steep TRY sell-off to a new 19-day high close yesterday after bellicose threats from Trump to “destroy and obliterate the Economy of Turkey” if Turkey made any move deemed wrong by the Trump administration in Syria. USDTRY is also threatening a new 49-day high today.
Today’s Breakout Highlight: GBPJPY
GBPJPY is poking below its 19-day low daily close of 131.84 today, trading below 130.50 at one point as concerns rise that we are headed for a hard, chaotic, No Deal Brexit at the end of this month after signals from both the UK and the EU that negotiations are leading nowhere at the moment. Note that the price action has taken us to the line that was the previous break-out line to the upside back in early September, which led to a very successful run higher for break-out traders.
2024: The wasted year
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As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
