FX Breakout Monitor: Recent JPY breaks extend, USD bounces
Head of FX 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.
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 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.
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.
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.
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 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.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.