Macro: Sandcastle economics
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FX Breakout Monitor: Powell blinks, dollar downside extends
John J. Hardy
Head of FX Strategy
Summary: We continue to eye EURUSD, GBPUSD and USDNOK for signs that the Fed’s dovish rhetoric shift will continue to drive further USD declines.
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The US dollar has weakened further after Friday’s watershed event with Federal Reserve chair Jerome Powell and trades at new lows versus a number of emerging market currencies while most G10 pairs have more wood to chop before registering a USD breakdown.
On Friday, we noted how the blowout decline and subsequent bounce in JPY crosses (also driving similar developments in AUD crosses) created a whiplash so profound on the charts that finding fresh break signals in either direction could prove difficult for quite some time. Still, as we await the December ISM non-manufacturing survey release today and a number of Fed officials out speaking Wednesday and Thursday, as well as Wednesday’s Federal Open Market Committee minutes, we continue to eye EURUSD, GBPUSD and USDNOK for signs that the Fed’s dovish rhetoric shift will continue to drive further USD declines.
Meanwhile, USD/EM trades have already extended fairly aggressively with follow up action in several EM currencies today.
Today’s FX Breakout monitor
Page 1: USDCHF, GBPUSD and USDCAD are the only G10 USD pairs trading with the USD below the lowest 19-day closing level. USDCHF is eyeing the longer term 49-break as well. A glance at the chart in USDCHF, however, shows a very choppy declining channel and we’d like to see a break-up in EURUSD to confirm USD direction this week and as a way to express a USD downside view.
The US dollar has weakened further after Friday’s watershed event with Federal Reserve chair Jerome Powell and trades at new lows versus a number of emerging market currencies while most G10 pairs have more wood to chop before registering a USD breakdown.
On Friday, we noted how the blowout decline and subsequent bounce in JPY crosses (also driving similar developments in AUD crosses) created a whiplash so profound on the charts that finding fresh break signals in either direction could prove difficult for quite some time. Still, as we await the December ISM non-manufacturing survey release today and a number of Fed officials out speaking Wednesday and Thursday, as well as Wednesday’s Federal Open Market Committee minutes, we continue to eye EURUSD, GBPUSD and USDNOK for signs that the Fed’s dovish rhetoric shift will continue to drive further USD declines.
Meanwhile, USD/EM trades have already extended fairly aggressively with follow up action in several EM currencies today.
Today’s FX Breakout monitor
Page 1: USDCHF, GBPUSD and USDCAD are the only G10 USD pairs trading with the USD below the lowest 19-day closing level. USDCHF is eyeing the longer term 49-break as well. A glance at the chart in USDCHF, however, shows a very choppy declining channel and we’d like to see a break-up in EURUSD to confirm USD direction this week and as a way to express a USD downside view.
Page 2: USDCHF, GBPUSD and USDCAD are the only G10 USD pairs trading with the USD below the lowest 19-day closing level. USDCHF is eyeing the longer term 49-day break as well. A glance at the chart in USDCHF, however, shows a very choppy declining channel and we’d like to see a break-up in EURUSD to confirm USD direction this week and as a way to express a USD downside view.
Chart: USDNOK
We noted the key EURUSD level not far away in EURUSD (1.1467, the highest 19-day and 49-day closing level) as significant for the wider USD outlook. In USDNOK, a technical breakdown back through old highs around 8.60 is already unfolding as both the USD is weakening on the Fed’s change of rhetorical stance and NOK is rallying on the resurgence in oil prices.
We noted the key EURUSD level not far away in EURUSD (1.1467, the highest 19-day and 49-day closing level) as significant for the wider USD outlook. In USDNOK, a technical breakdown back through old highs around 8.60 is already unfolding as both the USD is weakening on the Fed’s change of rhetorical stance and NOK is rallying on the resurgence in oil prices.
Chart: USDZAR
USDZAR showing a local break, but do note the lack of a well-identified pivot level and still rather wide range with the low close now not far away near 13.67.
USDZAR showing a local break, but do note the lack of a well-identified pivot level and still rather wide range with the low close now not far away near 13.67.
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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