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: JPY slides, GBP falters
John J. Hardy
Global Head of Macro Strategy
Summary: The yen has blasted lower on the combination of higher global yields and resurgent risk appetite, while sterling stumbles for a second day after its recent break lower. Oddly joining these two currencies in the weak column are a number of EM currencies, which are looking lower versus a resilient USD.
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The USD was resurgent late yesterday and into this morning, though the some of that move has been unwound ahead of the US open today, such that the USD mostly only finds itself higher – in breakout terms – against the JPY and a few EM currencies. The newest coincident indicator to crop up in recent days is the US treasury market sell-off, as higher US yields all along the curve may be the driving the action in USDJPY (an oft-noted correlation there) but also tempering enthusiasm for EM carry trades.
Next week looks an important one for AUD, with the Reserve Bank of Australia up Tuesday and support in some key AUD pairs not far away (we noted EURAUD yesterday, a pair that is in play today as well – as AUDUSD may be if trading below the range lows post-RBA next week – stay tuned. The Bank of Canada and European Central Bank also meet next week and key US data is on tap next Friday (jobs data) as well, with US yields also suddenly more dynamic. Could we finally see some range expansion and directional moves of note next week?
Breakout signal tracker
GBP not helping us out here as the surge in strength has faltered and EURGBP is backing up today – directional moves have been tough to sustain in almost every currency of late.
The USD was resurgent late yesterday and into this morning, though the some of that move has been unwound ahead of the US open today, such that the USD mostly only finds itself higher – in breakout terms – against the JPY and a few EM currencies. The newest coincident indicator to crop up in recent days is the US treasury market sell-off, as higher US yields all along the curve may be the driving the action in USDJPY (an oft-noted correlation there) but also tempering enthusiasm for EM carry trades.
Next week looks an important one for AUD, with the Reserve Bank of Australia up Tuesday and support in some key AUD pairs not far away (we noted EURAUD yesterday, a pair that is in play today as well – as AUDUSD may be if trading below the range lows post-RBA next week – stay tuned. The Bank of Canada and European Central Bank also meet next week and key US data is on tap next Friday (jobs data) as well, with US yields also suddenly more dynamic. Could we finally see some range expansion and directional moves of note next week?
Breakout signal tracker
GBP not helping us out here as the surge in strength has faltered and EURGBP is backing up today – directional moves have been tough to sustain in almost every currency of late.
Today’s FX Breakout monitor
Page 1: JPY the big mover here and EURAUD closed at a new 19-day high yesterday, with the 1.6000 area quite important next week on the other side of the RBA. Note that AUDCAD has been looking lower as well – though it has backed up just ahead of today’s report after Canada’s weak GDP report for December / Q4.
Page 1: JPY the big mover here and EURAUD closed at a new 19-day high yesterday, with the 1.6000 area quite important next week on the other side of the RBA. Note that AUDCAD has been looking lower as well – though it has backed up just ahead of today’s report after Canada’s weak GDP report for December / Q4.
Page 2: USDTHB has squeezed significantly higher in a nice confirmation of the recent divergent momentum setup – USDTRY and USDZAR are having a go at joining in breaking higher again. Note precious metals at downside break levels as well – likely on the combination of USD firmness and higher US yields.
Chart: EURAUD
We’ll be watching AUD pairs closely next week, especially EURAUD and AUDUSD, after the RBA meeting for a sense of whether a new down leg inspired by the central bank's concern linked to the domestic housing bubble unwind sees a more notable reassessment of its likely policy path. The key trigger area here – regardless of the nominal range highs, is the 1.6000 area.
We’ll be watching AUD pairs closely next week, especially EURAUD and AUDUSD, after the RBA meeting for a sense of whether a new down leg inspired by the central bank's concern linked to the domestic housing bubble unwind sees a more notable reassessment of its likely policy path. The key trigger area here – regardless of the nominal range highs, is the 1.6000 area.
Chart: XAGUSD
Silver has beaten gold to the punch in trying to break lower today and a weak close today would also result in an ugly weekly candlestick. The next major low close was near 15.26, a break of which could lead all the way to 15.00 or lower.
Silver has beaten gold to the punch in trying to break lower today and a weak close today would also result in an ugly weekly candlestick. The next major low close was near 15.26, a break of which could lead all the way to 15.00 or lower.
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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