Quarterly Outlook
Q3 Investor Outlook: Beyond American shores – why diversification is your strongest ally
Jacob Falkencrone
Global Head of Investment Strategy
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FX Breakout Monitor: EURUSD making an attempt
John J. Hardy
Global Head of Macro Strategy
Summary: The ECB did all it could do exceed the bar of dovish expectations today and EURUSD is poking at the key local breakout level once again. This could finally set a fresh trending move in motion if a break can hold through Friday’s close.
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I noted in a tweet earlier today that the EURUSD range seen over the prior three months (just over 3%) was the lowest since the euro began trading, something that is unsustainable unless we are heading toward a single world currency. The other episode with volatility that almost matched these lows came back in early 2014 and was followed by one of the most pronounced and persistent trends in EURUSD history, driven by the policy divergence of a hiking Federal Reserve and a European Central Bank about to launch full-scale QE.
Today, the ECB managed to get out front ahead of dovish expectations, announcing a new TLTRO facility now rather than later and dramatically slashing inflation and growth forecasts for 2019 while delaying guidance on the timing for a first hike to beyond the end of this year. EURUSD is poking at new local lows on this dovish performance. Elsewhere, the USD is firm across the board outside of indifferent price action in USDJPY.
Breakout signal tracker
We add a EURUSD short and an AUDUSD short at current levels to our signal tracker with the operating assumption that these pairs will sustain their breaks lower through the key US jobs data tomorrow.
I noted in a tweet earlier today that the EURUSD range seen over the prior three months (just over 3%) was the lowest since the euro began trading, something that is unsustainable unless we are heading toward a single world currency. The other episode with volatility that almost matched these lows came back in early 2014 and was followed by one of the most pronounced and persistent trends in EURUSD history, driven by the policy divergence of a hiking Federal Reserve and a European Central Bank about to launch full-scale QE.
Today, the ECB managed to get out front ahead of dovish expectations, announcing a new TLTRO facility now rather than later and dramatically slashing inflation and growth forecasts for 2019 while delaying guidance on the timing for a first hike to beyond the end of this year. EURUSD is poking at new local lows on this dovish performance. Elsewhere, the USD is firm across the board outside of indifferent price action in USDJPY.
Breakout signal tracker
We add a EURUSD short and an AUDUSD short at current levels to our signal tracker with the operating assumption that these pairs will sustain their breaks lower through the key US jobs data tomorrow.
Today’s FX Breakout monitor
Page 1: EURUSD making its move over the ECB today and it will be important for the close at new lows to hold into the end of this week’s trading. AUDUSD has stuck lower but needs to find more momentum to keep the focus lower in the wake of tomorrow’s US jobs report.
Page 1: EURUSD making its move over the ECB today and it will be important for the close at new lows to hold into the end of this week’s trading. AUDUSD has stuck lower but needs to find more momentum to keep the focus lower in the wake of tomorrow’s US jobs report.
Page 2: ZAR is now joining TRY in falling more persistently versus the stronger US dollar with USDMXN close to joining for a break higher for the first time in a while. USDSEK and USDNOK are also poking at fresh highs today and the precious metals remain in a local funk – somewhat interesting that they are getting a signal from the strong USD more than the dovish ECB (the latter would have been expected to provide more support).
Chart: EURUSD
We revisit the EURUSD chart once again, and some traders will be reluctant to join in selling the local break after multiple small range breaks in both directions have led nowhere. Certainly, a closing level for this week that comes in near the lows today and even beyond the 1.1217 major low from last November would help the bearish case going into next week.
We revisit the EURUSD chart once again, and some traders will be reluctant to join in selling the local break after multiple small range breaks in both directions have led nowhere. Certainly, a closing level for this week that comes in near the lows today and even beyond the 1.1217 major low from last November would help the bearish case going into next week.
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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