Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
FX Breakout Monitor: Recent JPY breaks extend, USD bounces
John J. Hardy
Global Head of Macro Strategy
Summary: The recent JPY breakouts are extending aggressively in nearly every G10 JPY cross. Meanwhile, the USD has avoided tumbling over the edge in broad terms despite the USDJPY meltdown and is eyeing fresh highs versus the commodity dollars as 2019 gets underway.
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The beginning of a new calendar year is the right time for paying attention to fresh range breaks. As the year gets under way, traders put fresh ideas and capital to work as liquidity returns to markets after the tricky holiday period and end-of-quarter, end-of-year rebalancing flows fade in the rear view mirror.
The recent JPY breakout higher, however, unfolded already in the wake of the December 20 Federal Open Market Committee meeting and is already getting a bit long in the tooth in places, so we wonder how much further this can extend – especially in USDJPY terms as the USD has perked up on the year’s first trading day. The JPY has a tendency to extend aggressively but then reverse equally sharply – much like the typical steep equity sell-off and backfilling that occurs in bear markets like the current one.
Today’s FX Breakout monitor
Page 1: Both USDJPY and EURJPY are at new 19-day and 49-day lows as of today’s snapshot but don’t show up in the “new breakouts” alert column as these are extensions of prior fresh breakouts. EURCHF is cropping up on the new breakout radar again but has a terrible record of follow through on technical breakouts and hasn’t fully cleared the recent range extremes. Elsewhere, AUDCAD is worth noting for downside developments as we highlight below, while the EURAUD “breakout” higher in overbought conditions and near a huge range resistance – patience there. We also have a look at AUDUSD today in a chart below – as it is breaking lower again not only on local scale, but in cycle terms as well.
The beginning of a new calendar year is the right time for paying attention to fresh range breaks. As the year gets under way, traders put fresh ideas and capital to work as liquidity returns to markets after the tricky holiday period and end-of-quarter, end-of-year rebalancing flows fade in the rear view mirror.
The recent JPY breakout higher, however, unfolded already in the wake of the December 20 Federal Open Market Committee meeting and is already getting a bit long in the tooth in places, so we wonder how much further this can extend – especially in USDJPY terms as the USD has perked up on the year’s first trading day. The JPY has a tendency to extend aggressively but then reverse equally sharply – much like the typical steep equity sell-off and backfilling that occurs in bear markets like the current one.
Today’s FX Breakout monitor
Page 1: Both USDJPY and EURJPY are at new 19-day and 49-day lows as of today’s snapshot but don’t show up in the “new breakouts” alert column as these are extensions of prior fresh breakouts. EURCHF is cropping up on the new breakout radar again but has a terrible record of follow through on technical breakouts and hasn’t fully cleared the recent range extremes. Elsewhere, AUDCAD is worth noting for downside developments as we highlight below, while the EURAUD “breakout” higher in overbought conditions and near a huge range resistance – patience there. We also have a look at AUDUSD today in a chart below – as it is breaking lower again not only on local scale, but in cycle terms as well.
Page 2: AUDJPY and GBPJPY are at new lows for the cycle, but as for EURJPY, these are already breaks that unfolded before Christmas and the latest extremes are extensions of existing moves. Note the USDTHB poking at new lows again – this is likely a function of China insisting on maintaining a firm CNY, likely as a good faith measure during the trade negotiations period with the US – thus we don’t see extension lower as likely if USD firm elsewhere. Gold and silver are at new highs for the cycle in recent days, but not highlighted as fresh breakouts. Finally, USDTRY is looking at a new 19-day high, but a move above 5.50 would look more technically significant in the days ahead.
Chart: USDJPY
The technically promising break lower in the wake of the December FOMC meeting has extended aggressively since. But with the USD showing signs of firming elsewhere and as we are well into the second wave of price action lower, the near term risk/reward look may prove limited.
Chart: EURJPY
Given a USD resurgence as the New Year gets under way, other JPY crosses may have more to offer in JPY upside terms. Note the EURJPY posting fresh lows here since the summer of 2017, a major break.
Given a USD resurgence as the New Year gets under way, other JPY crosses may have more to offer in JPY upside terms. Note the EURJPY posting fresh lows here since the summer of 2017, a major break.
Chart: AUDUSD
AUDUSD is clearing major levels intraday today, possibly setting up at least a go at the major lows for the cycle back in early 2016 that come in below 0.6850.
AUDUSD is clearing major levels intraday today, possibly setting up at least a go at the major lows for the cycle back in early 2016 that come in below 0.6850.
Chart: AUDCAD
The break lower here – assuming we hold below the range lows into the close today – looks technically compelling for an extension lower – perhaps towards a 61.8% retracement of the prior rally, which comes in around 0.9365.
The break lower here – assuming we hold below the range lows into the close today – looks technically compelling for an extension lower – perhaps towards a 61.8% retracement of the prior rally, which comes in around 0.9365.
REFERENCE: FX Breakout Monitor overview explanations
The following is a left-to-right, column by column explanation of the FX Breakout Monitor table.
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.
ATR: Average True Range or the average daily trading range. This calculation uses a 50-day exponential moving average. The shading indicates whether, relative to the prior 1,000 trading days, the current ATR is exceptionally large (deep orange), somewhat elevated (lighter orange, normal (no shading), quiet (light blue) or exceptionally quiet (deeper blue).
UP and DOWN Break Levels: These columns show how close, in ATR terms the current price is from breaking the highest and lowest prior 19- and 49-day daily closing levels, with the “breakout level” indicating the actual level of that highest or lowest close. If a breakout is getting close in ATR terms, it is highlighted in yellow or bright yellow (very close). If the current price is trading above or below the breakout levels, in other words, has just broken out, an “X” is shown to indicate this rather than an actual ATR reading.
NEW Breakouts: These are indications of whether, at the time of the snapshot of the market, the currency pair is trading above or below the breakout level. NOTE: it is key that the intention here is to highlight NEW or initiail breakouts, as a pair that has been trending consistently and has set multiple (more than two) new highs/lows will not be highlighted. This is done to avoid too much noise on the chart and focus on new information.
Number of breakouts for prior 8 days: This is merely a counter to indicate the number of days in which the pair has posted a new daily 19-day or 49-day high or low close. It will flag currency pairs that have been trending strongly recently but aren’t actively breaking out at the time of the snapshot of the model and/or aren’t highlighted in the NEW Breakouts part of the table.
Recent New 19-day Signals: this gives the reader a chance to see if any recent 19-day breakout signals were registered over the prior three days for perspective on recent developments. The prior day’s signals particularly interesting if waiting for daily closes before deciding whether to trade a breakout on the following day. If there have been more than three prior signals over the past eight days, no signal is shown in order to reduce the “noise” on the overview (though all signals are tallied in the “Number of breakouts…” column to the left.
The following is a left-to-right, column by column explanation of the FX Breakout Monitor table.
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.
ATR: Average True Range or the average daily trading range. This calculation uses a 50-day exponential moving average. The shading indicates whether, relative to the prior 1,000 trading days, the current ATR is exceptionally large (deep orange), somewhat elevated (lighter orange, normal (no shading), quiet (light blue) or exceptionally quiet (deeper blue).
UP and DOWN Break Levels: These columns show how close, in ATR terms the current price is from breaking the highest and lowest prior 19- and 49-day daily closing levels, with the “breakout level” indicating the actual level of that highest or lowest close. If a breakout is getting close in ATR terms, it is highlighted in yellow or bright yellow (very close). If the current price is trading above or below the breakout levels, in other words, has just broken out, an “X” is shown to indicate this rather than an actual ATR reading.
NEW Breakouts: These are indications of whether, at the time of the snapshot of the market, the currency pair is trading above or below the breakout level. NOTE: it is key that the intention here is to highlight NEW or initiail breakouts, as a pair that has been trending consistently and has set multiple (more than two) new highs/lows will not be highlighted. This is done to avoid too much noise on the chart and focus on new information.
Number of breakouts for prior 8 days: This is merely a counter to indicate the number of days in which the pair has posted a new daily 19-day or 49-day high or low close. It will flag currency pairs that have been trending strongly recently but aren’t actively breaking out at the time of the snapshot of the model and/or aren’t highlighted in the NEW Breakouts part of the table.
Recent New 19-day Signals: this gives the reader a chance to see if any recent 19-day breakout signals were registered over the prior three days for perspective on recent developments. The prior day’s signals particularly interesting if waiting for daily closes before deciding whether to trade a breakout on the following day. If there have been more than three prior signals over the past eight days, no signal is shown in order to reduce the “noise” on the overview (though all signals are tallied in the “Number of breakouts…” column to the left.
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