FOREX 7 minutes to read

FX Breakout Monitor: Powell blinks, dollar downside extends

John Hardy

Head of FX Strategy

Summary:  We continue to eye EURUSD, GBPUSD and USDNOK for signs that the Fed’s dovish rhetoric shift will continue to drive further USD declines.


For a PDF copy of this edition, click here.

The US dollar has weakened further after Friday’s watershed event with Federal Reserve chair Jerome Powell and trades at new lows versus a number of emerging market currencies while most G10 pairs have more wood to chop before registering a USD breakdown. 

On Friday, we noted how the blowout decline and subsequent bounce in JPY crosses (also driving similar developments in AUD crosses) created a whiplash so profound on the charts that finding fresh break signals in either direction could prove difficult for quite some time. Still, as we await the December ISM non-manufacturing survey release today and a number of Fed officials out speaking Wednesday and Thursday, as well as Wednesday’s Federal Open Market Committee minutes, we continue to eye EURUSD, GBPUSD and USDNOK for signs that the Fed’s dovish rhetoric shift will continue to drive further USD declines.

Meanwhile, USD/EM trades have already extended fairly aggressively with follow up action in several EM currencies today.

Today’s FX Breakout monitor

Page 1: USDCHF, GBPUSD and USDCAD are the only G10 USD pairs trading with the USD below the lowest 19-day closing level. USDCHF is eyeing the longer term 49-break as well. A glance at the chart in USDCHF, however, shows a very choppy declining channel and we’d like to see a break-up in EURUSD to confirm USD direction this week and as a way to express a USD downside view. 
Enlarge
Source: Saxo Bank
Page 2: USDCHF, GBPUSD and USDCAD are the only G10 USD pairs trading with the USD below the lowest 19-day closing level. USDCHF is eyeing the longer term 49-day break as well. A glance at the chart in USDCHF, however, shows a very choppy declining channel and we’d like to see a break-up in EURUSD to confirm USD direction this week and as a way to express a USD downside view. 
Enlarge
Source: Saxo Bank
Chart: USDNOK

We noted the key EURUSD level not far away in EURUSD (1.1467, the highest 19-day and 49-day closing level) as significant for the wider USD outlook. In USDNOK, a technical breakdown back through old highs around 8.60 is already unfolding as both the USD is weakening on the Fed’s change of rhetorical stance and NOK is rallying on the resurgence in oil prices. 
Enlarge
Source: Saxo Bank
Chart: USDZAR

USDZAR showing a local break, but do note the lack of a well-identified pivot level and still rather wide range with the low close now not far away near 13.67.
Enlarge
Source: Saxo Bank
FX Breakout Monitor overview explanations

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

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.

ATR
: Average True Range or the average daily trading range. This calculation uses a 50-day exponential moving average. The shading indicates whether, relative to the prior 1,000 trading days, the current ATR is exceptionally large (deep orange), somewhat elevated (lighter orange, normal (no shading), quiet (light blue) or exceptionally quiet (deeper blue).

UP and DOWN Break Levels
: These columns show how close, in ATR terms the current price is from breaking the highest and lowest prior 19- and 49-day daily closing levels, with the “breakout level” indicating the actual level of that highest or lowest close. If a breakout is getting close in ATR terms, it is highlighted in yellow or bright yellow (very close). If the current price is trading above or below the breakout levels, in other words, has just broken out, an “X” is shown to indicate this rather than an actual ATR reading.

NEW Breakouts
: These are indications of whether, at the time of the snapshot of the market, the currency pair is trading above or below the breakout level. NOTE: it is key that the intention here is to highlight NEW or initiail breakouts, as a pair that has been trending consistently and has set multiple (more than two) new highs/lows will not be highlighted. This is done to avoid too much noise on the chart and focus on new information. 

Number of breakouts for prior 8 days
: This is merely a counter to indicate the number of days in which the pair has posted a new daily 19-day or 49-day high or low close. It will flag currency pairs that have been trending strongly recently but aren’t actively breaking out at the time of the snapshot of the model and/or aren’t highlighted in the NEW Breakouts part of the table

Recent New 19-day Signals
: this gives the reader a chance to see if any recent 19-day breakout signals were registered over the prior three days for perspective on recent developments. The prior day’s signals particularly interesting if waiting for daily closes before deciding whether to trade a breakout on the following day. If there have been more than three prior signals over the past eight days, no signal is shown in order to reduce the “noise” on the overview (though all signals are tallied in the “number of breakouts…” column to the left). 

You can access both of our platforms from a single Saxo account.

Disclaimer

Saxo Capital Markets (Australia) Pty Ltd 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 Combined 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.

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)