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: JPY still on top
John J. Hardy
Global Head of Macro Strategy
Summary: We’ve had a few cycles of risk-off and risk-on since Trump’s tweets over the weekend, but the JPY has generally managed to remain atop the action as we stare down an important Friday.
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A difficult environment here for breakout/momentum traders in all asset classes as we have a very headline-buffeted environment in the wake of Trump’s renewal of tariff threats on China over the weekend. The deadline of noon on Friday sets up an important event risk for the ensuing action, which has already produced a number of direction changes since the ugly open on Monday.
FX traders may find it difficult for trades to sustain a direction, though a sustained “risk-off” period through Friday could finally see a more notably breakdown in JPY crosses and a weakening trend in commodity currencies and emerging markets (the latter possibly frustrated by China’s defense of the CNY level).
Breakout signal tracker
The original signal upon which our USDCAD trade was based would be expiring today, but since the trade is still in good shape and survived a test of support, we will keep the signal on provided a new breakout to the upside unfolds ahead of the weekend. The USDRUB long signal has oddly been held back, which is a surprise given the backdrop. Also, the EURAUD long signal was held back by the Reserve Bank of Australia's failure to cut, but this could change if we continue to see risk-off on US-China trade concerns.
A difficult environment here for breakout/momentum traders in all asset classes as we have a very headline-buffeted environment in the wake of Trump’s renewal of tariff threats on China over the weekend. The deadline of noon on Friday sets up an important event risk for the ensuing action, which has already produced a number of direction changes since the ugly open on Monday.
FX traders may find it difficult for trades to sustain a direction, though a sustained “risk-off” period through Friday could finally see a more notably breakdown in JPY crosses and a weakening trend in commodity currencies and emerging markets (the latter possibly frustrated by China’s defense of the CNY level).
Breakout signal tracker
The original signal upon which our USDCAD trade was based would be expiring today, but since the trade is still in good shape and survived a test of support, we will keep the signal on provided a new breakout to the upside unfolds ahead of the weekend. The USDRUB long signal has oddly been held back, which is a surprise given the backdrop. Also, the EURAUD long signal was held back by the Reserve Bank of Australia's failure to cut, but this could change if we continue to see risk-off on US-China trade concerns.
Today’s FX Breakout monitor
Page 1: Here we see JPY crosses pushing lower... these will be the most sensitive to further headline risk surrounding the US-China trade negotiations. Very interesting signal value in the CHF not participating in the JPY surge, and this makes us more interested in CHF signals pointing to weakness, including a possible USDCHF break imminent (trading as of our snapshot near the breakout point). NZDUSD is also at the breakpoint ahead of tonight’s Reserve Bank of New Zealand meeting.
Page 1: Here we see JPY crosses pushing lower... these will be the most sensitive to further headline risk surrounding the US-China trade negotiations. Very interesting signal value in the CHF not participating in the JPY surge, and this makes us more interested in CHF signals pointing to weakness, including a possible USDCHF break imminent (trading as of our snapshot near the breakout point). NZDUSD is also at the breakpoint ahead of tonight’s Reserve Bank of New Zealand meeting.
Page 2: here we note that GBPJPY is almost set to join other JPY crosses at new local lows despite the recent strong sterling. As well, EURNOK has paused in arguably the last resistance area ahead of tomorrow’s Norges Bank meeting, while NOKSEK is near the cycle highs; both are likely to move significantly on the Norges Bank’s rate guidance. We discuss the USDSGD breakout level in the chart discussion below.
Chart: USDSGD
USDSGD is at an interesting inflection point near the recent highs, but also near the 200-day moving average which is an apparent market focus for now. Assuming China wants to maintain a cap on the USDCNY rate reasonably below 7.00, will the market be reluctant to take the USD higher versus currencies in China’s immediate orbit?
USDSGD is at an interesting inflection point near the recent highs, but also near the 200-day moving average which is an apparent market focus for now. Assuming China wants to maintain a cap on the USDCNY rate reasonably below 7.00, will the market be reluctant to take the USD higher versus currencies in China’s immediate orbit?
Chart: EURNOK
EURNOK will inevitably move on the Norges Bank meeting tomorrow – the recent rally has taken the pair to the last resistance area into 9.80-ish ahead of the huge 10.00+ top. Only twice since the euro began trading has EURNOK registered a daily close above 10.00 – once in late 2008 during the financial crisis and once late last year during the depths of the risk sentiment nosedive.
EURNOK will inevitably move on the Norges Bank meeting tomorrow – the recent rally has taken the pair to the last resistance area into 9.80-ish ahead of the huge 10.00+ top. Only twice since the euro began trading has EURNOK registered a daily close above 10.00 – once in late 2008 during the financial crisis and once late last year during the depths of the risk sentiment nosedive.
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.
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