Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
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FX Breakout Monitor: FOMC extends USD weakness
John J. Hardy
Global Head of Macro Strategy
Summary: USD weakness is the theme after the dovish FOMC meeting, most notably in the USD/emerging market currencies that were already trending recently. Elsewhere, the euro is struggling after weak growth data today.
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The market had the correct read on the Federal Open Market Committee meeting, which delivered with an even more dovish than expected performance as it softened its rate guidance and shifted its attitude on its balance sheet reduction policy. The resulting USD weakness is most intense in already trending USD bear moves versus emerging market currencies, though the USD did register new lows versus all of the commodity dollars on the close yesterday. Elsewhere, the euro is struggling a bit in the crosses after weak EU and especially Italian growth data today and sterling is struggling even more so on the sense that the Brexit situation will be taken all the way to the wire before we know what kind of deal we’ll get.
Today’s FX Breakout monitor
Page 1: AUDUSD closed yesterday at a new high for the cycle on clearing the prior 0.7215 mark, and EURAUD, discussed below, is looking at doing the same. NZDUSD and USDCAD also etched new 19-day highs/lows, respectively as the USD fared poorly against commodity and EM currencies. Note the low close for the cycle (49-day) in USDJPY just a bit more than 1 ATR away from current levels.
The market had the correct read on the Federal Open Market Committee meeting, which delivered with an even more dovish than expected performance as it softened its rate guidance and shifted its attitude on its balance sheet reduction policy. The resulting USD weakness is most intense in already trending USD bear moves versus emerging market currencies, though the USD did register new lows versus all of the commodity dollars on the close yesterday. Elsewhere, the euro is struggling a bit in the crosses after weak EU and especially Italian growth data today and sterling is struggling even more so on the sense that the Brexit situation will be taken all the way to the wire before we know what kind of deal we’ll get.
Today’s FX Breakout monitor
Page 1: AUDUSD closed yesterday at a new high for the cycle on clearing the prior 0.7215 mark, and EURAUD, discussed below, is looking at doing the same. NZDUSD and USDCAD also etched new 19-day highs/lows, respectively as the USD fared poorly against commodity and EM currencies. Note the low close for the cycle (49-day) in USDJPY just a bit more than 1 ATR away from current levels.
Page 2: Here, we mostly see extension of the weak USD breakouts versus EM Currencies and gold and silver, which plays on the even more dovish than expected FOMC developments late yesterday. We discuss AUD strength against all of the G3 currencies (USD, AUD and JPY) below.
Chart: AUDUSD
AUDUSD is clearing the 19-day high close on a sharp reaction to the FOMC meeting late yesterday – the next levels on the chart are the prior range high just shy of 0.7400 and then the bigger major prior low near 0.7500. Note the 200-day moving average just ahead.
AUDUSD is clearing the 19-day high close on a sharp reaction to the FOMC meeting late yesterday – the next levels on the chart are the prior range high just shy of 0.7400 and then the bigger major prior low near 0.7500. Note the 200-day moving average just ahead.
Chart: EURAUD
The euro looks weak today on poor growth data, led by EURAUD, which is eyeing the lowest close for the year today and could extend on further improvement in risk appetite and positive US-China trade headlines, if these are in the making.
The euro looks weak today on poor growth data, led by EURAUD, which is eyeing the lowest close for the year today and could extend on further improvement in risk appetite and positive US-China trade headlines, if these are in the making.
Chart: AUDJPY
AUDJPY closing at a new 19-day high yesterday and trying to follow through a bit today – this 79.00 area of the break rather pivotal and this pair likely to show high beta / positive correlation to the follow-on direction in risk appetite.
AUDJPY closing at a new 19-day high yesterday and trying to follow through a bit today – this 79.00 area of the break rather pivotal and this pair likely to show high beta / positive correlation to the follow-on direction in risk appetite.
Most USD/emerging market trades piling on the downside today on the implications of a looser Fed – USDZAR is no exception and looking below the prior range. Further commodity / risk appetite upside likely to show strong participation in EM assets and currencies.
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.
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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