FX Breakout Monitor: Risk sentiment reverses again

FX Breakout Monitor: Risk sentiment reverses again

Forex 5 minutes to read
John J. Hardy

Global Head of Macro Strategy

Summary:  Friday’s ugly session for equities and risk-correlated currencies has yielded to a swift change of direction yesterday and especially today, with the JPY going from strength to weakness and AUD and NZD poking up at breakout levels.


For a PDF copy of this edition, click here.

Currency traders are suffering a case of whiplash as JPY crosses are reversing hard back to the upside (catching our USDJPY short position the wrong way around and completing a string of ugly reversals for most USD breakout trades). Elsewhere, renewed strength in risk appetite is seeing AUD and NZD on the verge of breaking higher versus the US dollar and already breaking higher versus the sideways euro.

We follow the EURAUD downside breakout ahead of today’s close, sensing that the sudden change in risk on could be the beginning of a reassessment of the dovish Federal Reserve (read: not continuing to favour the knee-jerk celebration last week of the Fed bringing back the policy punchbowl by abandoning QT and eliminating rate hike guidance).

Breakout signal tracker

This morning, we talked about reducing USDJPY shorts by half and we will now take off the remainder as well, given the price action today and complete lack of follow-through of the price action from Friday’s weak close in JPY crosses (note AUDJPY for example). We add a EURAUD short at current market levels.
Source: Saxo Bank
Today’s FX Breakout monitor

Page 1: JPY crosses are reversing hard from Friday’s strength and AUD is already breaking higher versus the EUR and USD today if it closes at current levels or stronger. We like the technical setup of the NZDUSD break higher, but we’re hesitant to jump in until we have a look at tonight’s Reserve Bank of New Zealand meeting.
Source: Saxo Bank
Page 2: EURSEK is breaking lower again – this could extend on the assumption that risk appetite remains strong as smaller currencies all stand to benefit. The same goes for EURNOK, especially if oil participates in hopes that growth will respond to the world’s accommodative policy makers and hopes of improving USD liquidity on the Fed’s coming tapering of QT.
Source: Saxo Bank
Chart: EURAUD

A weak close today in EURAUD could set up a considerable run lower here on the hope that the global growth outlook will improve on Chinese stimulus and more accommodative central bank policy. Note the 200-day moving average and levels slightly lower that have been in play so many times this year. AUDUSD has been in a tight congest range as well, A significant further melt-up in risk appetite could set the tone for a significant move lower toward the sub-1.5400 lows from late last year.
EURAUD
Source: Saxo Bank
Chart: EURSEK

EURSEK having a look lower in what looks like a broadening theme of smaller currencies rising against the G3 currencies, a theme that could strengthen if we go from perceiving the risk sentiment improvement as merely being a bounce-back to becoming an outright melt-up. Any improvement in activity numbers in Europe could add fuel for downside potential.
EURSEK
Source: Saxo Bank
Chart: AUDJPY

AUDJPY showing some of the highest energy in turning from Friday’s weak session as the AUD and JPY stretch in opposite directions; a mere few sessions after registering a downside breakout, this pair is staring down an upside breakout. Watching for further development potential if the big AUDUSD sticks higher as well.
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.

Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992