Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
FX Breakout Monitor: USD rising back to the top
John J. Hardy
Chief Macro Strategist
Summary: A bounce-back from the worst trade tension escalation fears and a whiff of existential fears out of Europe on tough talk from Italy’s Salvini has the US dollar bouncing back, especially versus the hapless Aussie.
It is tough to draw conclusions in this market, but the AUD looks weak despite a modest pullback in the US-China rhetoric on trade as the latest NAB business survey points to a weakness in the Australia labour market, a key for the Reserve Bank of Australia’s policy decision on the timing of an eventual cut.
Elsewhere, sterling is struggling mightily as Theresa May’s days as prime minister may be winding down. The euro has veered away from the upside break level versus the USD as today saw Italy’s Salvini talking tough on the government’s intentions to break the budget rules if that is what it takes to lower unemployment. EURCHF has also been heavily offered.
Breakout signal tracker
The AUDUSD technical breakdown looks too clear-cut to ignore, so we add a short signal to our Breakout tracker with a stop above 0.7000 and looking to take profit in seven to nine trading days. We would like to add a USDCAD long if the USD continues to get the upper hand in coming sessions. The first key test for all AUD pairs (Trump tweets on trade issues aside) will be Thursday’s Australian jobs data, as the RBA has linked its decision to cut rates on the strength or weakness of the labour market.
Elsewhere, sterling is struggling mightily as Theresa May’s days as prime minister may be winding down. The euro has veered away from the upside break level versus the USD as today saw Italy’s Salvini talking tough on the government’s intentions to break the budget rules if that is what it takes to lower unemployment. EURCHF has also been heavily offered.
Breakout signal tracker
The AUDUSD technical breakdown looks too clear-cut to ignore, so we add a short signal to our Breakout tracker with a stop above 0.7000 and looking to take profit in seven to nine trading days. We would like to add a USDCAD long if the USD continues to get the upper hand in coming sessions. The first key test for all AUD pairs (Trump tweets on trade issues aside) will be Thursday’s Australian jobs data, as the RBA has linked its decision to cut rates on the strength or weakness of the labour market.
Today’s FX Breakout monitor
Page 1: Note yet another low close in AUDUSD. This time it is looking more relevant as yesterday’s close more clearly poked below all prior low closes. Sterling weakness is now getting sufficiently advanced that EURGBP is poking above breakout levels as of this writing and GBPUSD isn’t far away to a breakdown level below 1.2900. Note as well that EURCHF has broken down badly over the last couple of sessions.
Page 1: Note yet another low close in AUDUSD. This time it is looking more relevant as yesterday’s close more clearly poked below all prior low closes. Sterling weakness is now getting sufficiently advanced that EURGBP is poking above breakout levels as of this writing and GBPUSD isn’t far away to a breakdown level below 1.2900. Note as well that EURCHF has broken down badly over the last couple of sessions.
Page 2: Here we see few new developments, but the USD is at the upper end of the range versus a number of the EM currencies (notable USDSGD move yesterday in sympathy with the USDCNY surge especially interesting technically – see below). As well, gold has ripped higher, perhaps linked to the CNY devaluation fears driving safe haven flows.
Chart: AUDUSD
Hard to ignore the AUDUSD breakdown signal, although the USD signal isn’t particularly clear elsewhere. Trade headlines or a strong Australian jobs report could turn the tables on the bears, but for now, the pair is seeing a notable breakdown.
Hard to ignore the AUDUSD breakdown signal, although the USD signal isn’t particularly clear elsewhere. Trade headlines or a strong Australian jobs report could turn the tables on the bears, but for now, the pair is seeing a notable breakdown.
Chart: GBPUSD
Cable is close to a major breakout level to the downside, the lowest prior close around 1.2900 as the clouds once again gather over the Brexit process. EURGBP has also looked at upside breakout levels today.
Cable is close to a major breakout level to the downside, the lowest prior close around 1.2900 as the clouds once again gather over the Brexit process. EURGBP has also looked at upside breakout levels today.
Chart: USDSGD
One of the more notable moves in Asian FX was USDSGD punching above the recent range and above the 200-day moving average as all traders wonder whether the USDCNY ceiling around 7.00 will remain in effect as the US and China face off over trade issues.
One of the more notable moves in Asian FX was USDSGD punching above the recent range and above the 200-day moving average as all traders wonder whether the USDCNY ceiling around 7.00 will remain in effect as the US and China face off over trade issues.
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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