Summary: We got very soft US payrolls and earnings data today that weakened the USD in a knee-jerk reaction. If the move holds into early next week, momentum traders will look to trade weak USD breakouts.
Click here for the full FX Breakout Monitor report.
The payrolls numbers from the US were weak. The US May nonfarm payrolls Change was only +75k versus +175k expected, and the two-month revision was -75k, so effectively we have zero payrolls growth from where we thought we were at the end of April. Given good jobless claims numbers of late and a strong ISM Non-manufacturing employment component, this came as a surprise, but this figure can be erratic from month to month.
Average hourly earnings rose a disappointing 0.2% month-on-month and only 3.1% year-on-year, the weakest since last September.
The US dollar sold off in response and we watch today’s close with extra interest as we could see a more notable break in a number of USD pairs – especially EURUSD at the 1.1300 area we have been tracking lately.
Breakout signal tracker
End-of-day Friday is not a time for adding signals to the tracker – we’ll have a fresh look early next week.
Note: we wrote correctly that the EURJPY short signal was stopped out at breakeven, but indicated this incorrectly in the table below – this has now been rectified.
Today’s FX Breakout monitor
Page 1: the 1.1300 area is the important break level in EURUSD, which captures the medium term 49-day high as well. No hold of that level into the weekly close, then no breakout, and, well... stay tuned. Elsewhere, EURGBP is on an odd sprint higher late today – the latest break higher has failed to yield further gains this week. We discuss the aggressive USDCAD move below.
Page 2: precious metals jumped to attention again on the weak US growth. USDZAR extended higher on concerns that the SARB may lose its independence and print money to bail out state-owned company debt, like that of the debt- and scandal-plagued Eskom. USDMXN remains nervous at the top end of the range as US-Mexico talks are set to resume to resolve the border crisis in the US.
The contrast of weak US employment data and another strong Canadian survey has USDCAD looking at new 49-day lows today as well as the 200-day moving average. That latter level seems a bit arbitrary and the next big level is 1.3100 from here, a level that may only come under pressure if the market continues to celebrate weak data as a sign that the Fed will bring back the punchbowl (i.e. strong risk sentiment). Next major test for all USD pairs will be the June 19 FOMC meeting.
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.
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Equities: The AI fever pushes market to new extremes
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
China faces challenges from generative AI amidst the fragmentation game
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Japan’s riposte to aging and productivity headwinds: robots with generative AI
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Fixed income: To hike or not to hike, that is the question
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.
Your browser cannot display this website correctly.
Our website is optimised to be browsed by a system running iOS 9.X and on desktop IE 10 or newer. If you are using an older system or browser, the website may look strange. To improve your experience on our site, please update your browser or system.