FX Breakout Monitor: JPY, AUD switch horses
Head of FX Strategy
Summary: Today we are looking at AUDCAD and JPY movements against a background of US Treasury demand.
The focus of the day today is more on a reversal in direction for AUD and JPY rather than new breakouts, as most exchange rates are in continuing trends (especially SEK) or consolidating/reversing.
The AUD has reversed so hard in its price action overnight that it is already breaking lower versus CAD and threatening to do so versus the AUD – stay tuned there.
Breakout signal tracker
USDJPY hasn’t approached its stop but it feels in danger given the reversal in JPY crosses elsewhere and the strong rally in US Treasuries – we remove this signal and book a loss of about 30 pips, or about 0.38x the risk taken on the position (P/L as a percentage of size to original stop).
We add the AUDCAD signal at just above 0.9400, using a stop assumption of 0.9485 and set to hold for seven to nine days, depending on how the price action develops.
Page 1: Reversals were the order of the day in JPY crosses, leaving USDDJPY bulls guessing although USDCHF remains near or above parity today. Elsewhere, AUD reversed hard and broke down versus CAD (we have added this to our signal list) and is close to a break lower in EURAUD – we’ll follow up on that one tomorrow if it proves of interest.
We highlighted AUDCAD as a potential breakdown candidate prior to the Reserve Bank of Australia meeting, but the immediate reaction was back to the upside;this time, the signal looks a bit more profound as Australian rates reacted sharply to RBA Governor Lowe’s dovish rhetoric overnight. Next target area is down toward 0.9200. We add this position to our curated breakout list above as well.
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.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.