Summary: The USD rally attempt from last week has yet to find new sustenance and fresh dollar longs are at risk of a reversal if follow-through strength is not found. Elsewhere, sterling traders faced whiplash today while the JPY remains in focus this week for potential breakout strength.
The big break attempt lower in EURUSD last Thursday over the European Central Bank meeting has yet to find fresh fuel after a mixed US jobs report failed to see follow on broad USD strength on Friday and to start this week. This leaves the breakout monitor more bereft of new signals than it has been in a long time. Still, we have a look at potential JPY strength via AUDJPY, USDJPY and EURJPY soon if the recent firming of the yen turns more pronounced.
Breakout signal tracker
Our recent EURUSD and AUDUSD shorts are at risk of stopping out soon if the USD doesn’t follow through on last week’s firming move. The US dollar has simply been unable to sustain directional moves in either direction against the major currencies after range breaking attempts this year.
Today’s FX Breakout monitor
Page 1: after last Thursday’s EURUSD break, we have yet to see follow-through lower. Elsewhere, the focus is on especially EURJPY and possibly AUDJPY as breakout candidates. Interesting to note AUDCAD trying to break higher on a day when AUDNZD is registering yet another new low.
Page 2: EURNOK offered a dose of whiplash as last Friday’s new high close (an ugly one, given the shooting star candlestick to close the day) was rejected strongly today on a strong Norway CPI. Elsewhere on Page 2, we see little fresh directional interest.
We added EURJPY to our watchlist on Friday and the pair narrowly missed a new 19-day close. Nominally, the 19-day low close is less interesting than a close clear of the 124.00 which has supported the price action since the brief meltdown at the beginning of the year.
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.