FX Breakout Monitor: USD resurgent, CHF and smalls wilt
Head of FX Strategy
Summary: The US dollar has rediscovered a modest bid today in the wake of yesterday’s FOMC minutes. The Swiss franc, meanwhile, has weakened sharply, possibly as safe haven bids linked to Brexit have faded after news of the long delay to the UK's departure from the EU.
The US dollar found buyers today after shrugging off the Federal Open Market Committee minutes last night, which largely merely confirmed the Fed’s intent to stand pat on the rate outlook until incoming data and/or market turbulence indicate otherwise.
The anticipation and now reality of a long Brexit delay has seen collapsing implied volatility for sterling options and the sharp weakening of the Swiss franc in recent sessions may be linked to the same phenomenon.
We highlight the USDCHF trading at new 19-day highs since yesterday in our signal tracker today. Elsewhere, we’re more interested in adding to USD longs in the form of a NZDUSD short if that pair trades below the 19-day and 49-day low closes, which are in play already today.
Breakout signal tracker
With G10 small currencies offered today and a suddenly resurgent US dollar, our confidence in the EURNOK short has dropped sharply, but we’ll leave it in place for now. We also add a USDCHF long at the current market price with a rather wide stop in ATR terms due to very constricted recent trading ranges.
Page 1: USDCHF is extending fairly aggressively higher as CHF makes a rare show of multiple days of trading in the same direction (weaker). The AUDUSD break higher yesterday, meanwhile, is already on the ropes today as a close near 0.7100 would keep bulls sitting on their hands. We focus below on the NZDUSD setup for a break lower, now that the USD is firming again.
Always tough to trade a new “breakout” that is within the range, but given a bit of momentum in CHF weakness after a key event risk (Brexit extension) and the USD perking up, we’ll follow this one with interesting, though the obvious bigger level is that top of the cycle area above 1.0100.
Very interested in tracking a possible breakout lower here due to the clarity of the range and the sense that NZD has turned the corner lower in broad terms as it finds itself under the Aussie’s thumb. Next major level lower is really the 0.6500 zone.
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.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.