FX Breakout Monitor: Strong risk appetite blasts JPY

Forex 5 minutes to read

John Hardy

Head of FX Strategy

Summary:  Today sees JPY, SEK, and emerging market currencies in focus.


For a PDF copy of this edition, click here.

This week, our eyes were focused on whether we would finally see a EURUSD break to the downside and yesterday’s ECB produced a “double tease” of what we identified was the key 1.1300 support without managing a close through that level. Today, the price action backed up again, leaving us none the wiser It appears that the European Central dovish shift was less profound than the market was pricing in and next week’s busy schedule on the Brexit, FOMC and US data fronts arguably has traders defaulting to sitting on their hands in a case where the ECB brought no real surprising shift yesterday.

Elsewhere today, sterling crosses are gyrating, boosted overnight by a story from the arguably dubious Sun newspaper overnight that the DUP might be amenable to May’s deal provided sufficient tweaks were in place on the Irish backstop. The price action reversed, as the EU would also need to be amenable to changing the backstop issue and we certainly still see two-way risk on sterling headlines next week as Parliament will swing into gear on a number of possible initiatives after voting on May’s 'Plan B' on Tuesday. 

Finally, as we look at below, SEK is making further noise today on the breakout front – we pointed out NOKSEK yesterday and have a look at EURSEK today – and USDJPY and JPY crosses in general look bid, as enthusiasm for risk appetite has picked up after the mid-week dip. The same goes for EM.
 
Today’s FX Breakout monitor

Page 1: Again, EURUSD managed a new 19-day close yesterday but the range key remains 1.1300 on a daily closing basis and today’s price action is so far taking us back away from that prospect. USDJPY is an interesting one on the attempt to close at a new high today – technically the key level looks like 110.00 on a closing basis ahead of a bevy of event risks next week.
Source: Saxo Bank
Page 2: Again, note the potential for new highs closes in NOKSEK and EURSEK here (chart for the latter discussed below). Elsewhere, a number of EM currencies are enjoying strength on the comeback in risk appetite, including USDZAR (discussed below) poking at the lows for the cycle and USDTHB riding a fresh push higher in China’s renminbi. Other EMs remain close to new highs for the cycle (lows in USD/EM pairs) as well.
Source: Saxo Bank
Chart: USDJPY

USDJPY is an interesting and difficult breakout candidate, having reversed about half of the brutal sell-off wave from December. Arguably, a close above 110.00 looks locally bullish here, and the pair could see some further support higher if the FOMC meeting produces a less cautious Fed after the December carnage forced more cautious rhetoric in the first days of the year.

A stellar jobs report (tipped off by Kudlow yesterday?) might be another source of JPY weakness if US yields pick up on the data. In general, JPY crosses broadly could all be on the bid if risk appetite continues to improve here, as they are nearly all in the same technical boat (save for GBPJPY, which already extended higher due to exceptional sterling strength this week).
Source: Saxo Bank
Chart: EURSEK

Yesterday we highlighted the NOKSEK close higher and there was some follow-through higher. Today we have a look at EURSEK, which is admittedly still within the range, but bears are watching for a new high close today after the ugly December Retail Sales report released today. A close near here would also be its highest close in about eight weeks, as this 10.30 level looks pivotal. Note the 200-day moving average in play as well a bit higher. A move through 10.35 opens up the range into 10.60-plus.
Source: Saxo Bank
Chart: USDZAR

USDZAR poking not just at 19-day low close, but also at the lowest level for the cycle as EMs enjoy global risk trade enthusiasm as this week’s dip in sentiment has yet to show any wider contagion. 
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.

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)

Saxo Capital Markets (Australia) Pty Ltd.
Level 25, 2 Park Street
NSW 2000
Sydney
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) Pty Ltd 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 & Combined Financial Services Guide & Product Disclosure Statement 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. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. 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.

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.