FX Breakout Monitor: JPY stealing the spotlight

FX Breakout Monitor: JPY stealing the spotlight

Forex 5 minutes to read

John Hardy

Head of FX Strategy

Summary: The USD rally has stumbled a bit today on a mixed US jobs report, but JPY strength has been more consistent in recent sessions, accelerated by the ECB’s dovish surprise yesterday and weak equity markets.

For a PDF copy of this edition, click here.

Yesterday’s huge break lower in EURUSD is already experiencing a test of confidence today on a mixed US jobs report (most clearly strong was household survey and unemployment rate drop, least positive was the +20k payrolls versus +180k expected. Earnings rose sharply to a new high for the cycle, but were flattered by a fractional and likely random drop in average weekly hours).

Today’s close will be very important for that pair and for the USD outlook into next week.

Elsewhere, JPY crosses are showing the most volatility on a suddenly resurgent JPY. But as the JPY has transitioned from weakest to strongest over the last week, it is only just now challenging breakout levels among the JPY crosses we track – EURJPY and AUDJPY look to be the first to break lower as we discuss below. USDJPY could quickly take over the market focus if the USD rally falters elsewhere.

Breakout signal tracker

We added EURUSD and AUDUSD shorts yesterday and the decent follow through lower allows us to pull down the stop in EURUSD from the initial level.

Today’s FX Breakout monitor

Page 1: the EURUSD break lower yesterday was critical stuff, but it needs follow-through and a participation from other USD pairs. Elsewhere, we note the more determined break lower in AUDNZD and EURCHF joining EURJPY in looking at new local lows today.

Page 2: The Scandies are putting in a very weak showing today, looking at new cycle lows even against a weak euro. Emerging markets also remain on the defensive on the weak risk appetite. AUDJPY is trading near the breakout level lower.

Chart: EURJPY

We add EURJPY to the watchlist as the pair has pushed to a new local low – though the critical range low is a bit lower still around 124.00. Further risk-off could favour the JPY more than the USD, judging from the price action of the last few sessions.

Chart: EURSEK

At the bottom of the heap today in G10 FX are the Scandies, apparently taking their lead from the ECB implications on their own central banks’ ability to normalise. Weak risk appetite is likely another immediate driver. EURSEK is rapidly running out of range ahead of the 10.729 top from last August (and the highest daily close back then was south of 9.70).

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.

Quarterly Outlook Q3 2023

AI: The good, the bad, and the bubble

AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.

Steen Jakobsen,
Chief Investment Officer
Read article
Equities: The AI fever pushes market to new extremes
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.

Peter Garnry,
Head of Equity Strategy
Read article
Commodities: bottoming out?
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.

Ole S. Hansen,
Head of Commodity Strategy
Read article
FX: The USD smile and the JPY dam break
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.

John J. Hardy,
Head of FX Strategy
Read article
Fixed income: To hike or not to hike, that is the question
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist

Read article
Is AI the new crypto?
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Read article
Artificial Intelligence: a promising gamechanger for the portfolio?
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.

Hans Oudshoorn,
Trainer Academy
Read article
Japan’s riposte to aging and productivity headwinds: robots with generative AI
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.

Charu Chanana,
Market Strategist
Read article
China faces challenges from generative AI amidst the fragmentation game
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.

Redmond Wong,
Market Strategist
Read article