Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
FX Breakout Monitor: AUDNZD tries again to the upside
John J. Hardy
Global Head of Macro Strategy
Summary: Sterling, AUDZND, EURCHF and GBPCHF in focus today.
For a PDF copy of this edition, click here.
Momentum remains strong for the moment in sterling crosses as Corbyn keeps door open to idea of a second referendum. In the new developments department, we are eyeing whether AUDNZD is set to extend higher after making a go at a break today.
Today’s developments were mostly extensions of prior breaks – particularly in the case of sterling pairs. But as we flagged yesterday, the technical setup for AUDNZD is compelling and indeed, we have a bit of follow through today as we watch whether the pair closes above the break level of 1.0620.
Today’s FX Breakout monitor
Page 1: Sterling continues to bull higher on the latest developments and registers new highs versus USD and EUR (EURGBP lower). EURCHF is an interesting one – having a look at a break higher again after the prior tease higher failed to yield to a trending move – we suspect GBPCHF is the chief driver of flows (see Page 2).
Elsewhere, note AUDNZD is currently trading above the 19-day high close and the setup is technically interesting as we discussed yesterday and repeat today in the chart discussion below.
Momentum remains strong for the moment in sterling crosses as Corbyn keeps door open to idea of a second referendum. In the new developments department, we are eyeing whether AUDNZD is set to extend higher after making a go at a break today.
Today’s developments were mostly extensions of prior breaks – particularly in the case of sterling pairs. But as we flagged yesterday, the technical setup for AUDNZD is compelling and indeed, we have a bit of follow through today as we watch whether the pair closes above the break level of 1.0620.
Today’s FX Breakout monitor
Page 1: Sterling continues to bull higher on the latest developments and registers new highs versus USD and EUR (EURGBP lower). EURCHF is an interesting one – having a look at a break higher again after the prior tease higher failed to yield to a trending move – we suspect GBPCHF is the chief driver of flows (see Page 2).
Elsewhere, note AUDNZD is currently trading above the 19-day high close and the setup is technically interesting as we discussed yesterday and repeat today in the chart discussion below.
Page 2: GBPCHF broke higher last Friday and has extended aggressively through this week’s Brexit developments, piling on quite a bit more today as Labour leader Jeremy Corbyn declared he is open to the idea of a second referendum, a shift in his prior stance and thought to be more sterling-positive on the potential for a Brexit reversal. Otherwise, we’re not terribly inspired by the new NOKSEK highs if EURNOK doesn’t continue to push lower. We also note that gold is perched right at the highs for the cycle, as discussed with a chart below.
Chart: AUDNZD
As we indicated yesterday, the setup here is rather compelling for bulls, given the clear pivot level provided by the prior high off the long slide. In the longer-term background, we also note that the attempts through 1.0500 were rejected recently, and on the fundamental side, the market has aggressively lowered Reserve Bank of New Zealand expectations relative to those for the Reserve Bank of Australia over the last week and more. The next zone of interest higher is the heavily trafficked 1.0800-50 region.
As we indicated yesterday, the setup here is rather compelling for bulls, given the clear pivot level provided by the prior high off the long slide. In the longer-term background, we also note that the attempts through 1.0500 were rejected recently, and on the fundamental side, the market has aggressively lowered Reserve Bank of New Zealand expectations relative to those for the Reserve Bank of Australia over the last week and more. The next zone of interest higher is the heavily trafficked 1.0800-50 region.
Chart: XAUUSD (spot gold)
An interesting chart here, both because we are near the highs for the cycle and because the consolidation phase unfolded with almost no volatility. Is this a sign of pent-p energy or merely a link to China’s move to keep a floor under its currency for now? Our ATR reading is near the very lowest it has registered over the last 1,000 trading days.
An interesting chart here, both because we are near the highs for the cycle and because the consolidation phase unfolded with almost no volatility. Is this a sign of pent-p energy or merely a link to China’s move to keep a floor under its currency for now? Our ATR reading is near the very lowest it has registered over the last 1,000 trading days.
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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