FOREX 7 minutes to read

FX Breakout Monitor: JPY potential already exhausted?

John Hardy

Head of FX Strategy

Summary:  Today's session produced little in the way of fresh signals with the JPY a particularly lacklustre breakout candidate in view of recent volatility.


For a PDF copy of this edition, click here.

The recent JPY volatility has hyperextended trading ranges in all JPY and AUD crosses, making fresh breaks a difficult proposition in many forex pairs for now. Next week should prove more interesting for the USD as trading themes for the year develop and on well-defined in some key pairs.

Earlier this week we noted the upside JPY breakout, which suddenly developed into a virtual flash crash in JPY crosses and then subsequent hard bounce that makes life difficult for traders looking for a trending move (impressive gains were available for those pouncing on the JPY move, but unless limit orders were placed, a few minutes away from the screen saw large potential profits left unrealised).

With the strong US jobs figures today and bond yields backing up again, the tactical risk for JPY is now perhaps to the downside and the ranges are now so distended in JPY crosses that clean new breakout signals in JPY crosses will be a long time in coming.

The same goes for the AUD in the opposite direction, as AUD pairs were clearly at the center of the JPY move – with even the likes of AUDUSD and AUDCAD suffering under the apparent weight of JPY flows via AUDJPY. Elsewhere, Brexit headline risks mean treacherous conditions for sterling traders until we have concrete developments.

Today’s FX Breakout monitor

Page 1: No fresh signals today and it will be difficult to argue in favour of compelling JPY signals for a time on the aggravated volatility this week. AUD pairs are in the same state after the crazy extension lower and subsequent neutralising bounce. More interesting for next week is EURUSD, where the range is quite well defined – arguably the 1.1308 19-day level is less compelling than the levels we discuss below to the downside, while the upside level 19-day break at 1.1467 looks more interesting if exceeded.
Source: Saxo Bank
Page 2: we are extremely wary of possible USD/Asia signals like USDTHB and USDSGD due to the managed CNY rate at the moment and likelihood that it may stay more or less frozen for now as long as the US and China are inside the trade negotiation window. As for the remarkable run higher in gold and silver, this may be punctuated for now (not unrelated to the JPY move) as US Treasuries got a strong boost from the US jobs data today. 
Source: Saxo Bank
Chart: EURUSD

The key pair for the US dollar for more widespread trending behavior in the greenback may be the EURUSD, which has been stuck in limbo for months. The tight near-term range makes the 19-day low close too close for comfort, and a better quality signal might be a break of the 1.1270 intraday low – or even the 1.1218 low close from November.

To the upside, the 1.1467 high close is better defined and we’ll be interested in taking the breakout hook on either a close above that level or below 1.1270.
Source: Saxo Bank
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). 
Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)