Chief Macro Strategist
Summary: The sudden JPY strength from Friday remains largely intact as we watch for whether continued weak risk sentiment will drive a sizable move in JPY crosses. Elsewhere, the weakest link among G10 currences at the moment is CAD.
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The sharp JPY rally that materialised Friday remains the most notable development of the last couple of sessions, clearly driven by Friday’s large shift in sentiment and the post-Federal Open Market Committee meeting rally in US treasuries. The latter faces an interesting test in the coming days with large auctions of 2-, 5- and 7-year US treasuries. The risk-off tone is going the US dollar no favours, as NZDUSD is actually oddly trying at breakout levels today even with an ugly risk off tone in early US trading hours. This is not the FX market of years past! But the biggest loser of the moment is CAD, where its exposure to concerns about the US economy and a dovish Fed and its weak data on Friday perhaps are weighing.
Breakout signal tracker
We added a USDJPY short on Friday – hoping for the first successful USD major trending move in a long time.
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.
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