Inflation will not moderate, it is a runaway train
Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Access both platforms from your single Saxo account.
FX Breakout Monitor: Fresh US-China trade tensions feed JPY strength
John Hardy
Head of FX Strategy, Saxo Bank Group
Summary: Market volatility has picked up as the US-China trade tensions have escalated, although trading ranges are still muted relative to even marginally normal times. That could quickly change if China’s commitment to the CNY floor weakens.
While markets are clearly very nervous, the trading ranges in the major currencies still look fairly compressed given what is at stake and the higher level of energy evident in global equity markets today. We assume much of the complacency is linked to two factors: first, speculators are already positioned relatively long in the US dollar, limiting is ability to serve as a safe haven in this environment and second, the complacent assumption that China will maintain its floor on the CNY, keeping USDCNY below the 7.00 level.
The speed of the USDCNY’s rise over the last week, and especially today, beg the question of whether the recent escalation of the trade showdown between the US and China could see the latter surrendering to market forces and allowing the CNY to weaken to offset the impact of some of the trade tariffs. Such a move would be seen as an escalation from the US side, but it could also drive considerable further uncertainty across markets, especially currencies. We would assume the most exposed to a move lower in the CNY would be the AUD, NZD and major Asian exporters into China, like SGD, THB, IDR, etc..
Breakout signal tracker
We stand aside here after taking off the two remaining positions on Friday.
The speed of the USDCNY’s rise over the last week, and especially today, beg the question of whether the recent escalation of the trade showdown between the US and China could see the latter surrendering to market forces and allowing the CNY to weaken to offset the impact of some of the trade tariffs. Such a move would be seen as an escalation from the US side, but it could also drive considerable further uncertainty across markets, especially currencies. We would assume the most exposed to a move lower in the CNY would be the AUD, NZD and major Asian exporters into China, like SGD, THB, IDR, etc..
Breakout signal tracker
We stand aside here after taking off the two remaining positions on Friday.
Today’s FX Breakout monitor
Page 1: No surprise to see the heavy JPY crosses, given nervous risk sentiment. Suddenly, the CHF is serving as a safe haven after largely ignoring risk sentiment developments recently and USDCHF and EURCHF are also looking at downside breaks here.
Page 1: No surprise to see the heavy JPY crosses, given nervous risk sentiment. Suddenly, the CHF is serving as a safe haven after largely ignoring risk sentiment developments recently and USDCHF and EURCHF are also looking at downside breaks here.
Page 2: Here, developments are largely extensions of prior trends, the most notable new developments being the spike higher in spot gold today (see chart below).
Chart: XAUUSD
Gold has sprung into action on the latest US-China trade showdown and traders and commentators bandying about the idea that China could look to sell some of its treasuries. The move looks impressive, but works against the recent tendency for gold to weaken together with a weak CNY – can the two head in opposite directions? Stay tuned… still quite a ways from the cycle top near 1,347.
Gold has sprung into action on the latest US-China trade showdown and traders and commentators bandying about the idea that China could look to sell some of its treasuries. The move looks impressive, but works against the recent tendency for gold to weaken together with a weak CNY – can the two head in opposite directions? Stay tuned… still quite a ways from the cycle top near 1,347.
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.
Latest Market Insights
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)