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: Post FOMC USD breakout yet to convince
John J. Hardy
Global Head of Macro Strategy
Summary: The US dollar broke down in the wake of the FOMC meeting, but relative to the dovish surprise we got, the move is so far modest. We’ll look to tomorrow’s weekly close for clues. Elsewhere, sterling traders holding collective breath ahead of a critical week ahead.
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The very dovish Federal Open Market Committee meeting inspired a knee-jerk USD swoon, but the weakness quickly yielded to a bounce in the greenback’s fortunes today – and if that bounce extends just a bit more it deserves the label of “reversal”, continuing the inability of USD traders to sustain a direction move of any notable duration. We’ll have a look at the quality of the closing levels today and tomorrow for a sense of whether USD bears will have their way or suffer a defeat even despite the dovish Fed.
Elsewhere, further NOK strength today on a hawkish Norges Bank sees further NOK extension higher.
Today’s FX Breakout monitor
Page 1: The US dollar breakdown in ready evidence here – at least versus the NZD, CHF, and EUR yesterday and today, with the USDJPY not far from a break level as well (see below). But the price action looks a bit hesitant after so many directional feints in the USD that have led nowhere this year. EURCHF breaks lower – an interesting move – possibly on Brexit stress worries. If so, headline risks next week could prove brutal in either direction.
The very dovish Federal Open Market Committee meeting inspired a knee-jerk USD swoon, but the weakness quickly yielded to a bounce in the greenback’s fortunes today – and if that bounce extends just a bit more it deserves the label of “reversal”, continuing the inability of USD traders to sustain a direction move of any notable duration. We’ll have a look at the quality of the closing levels today and tomorrow for a sense of whether USD bears will have their way or suffer a defeat even despite the dovish Fed.
Elsewhere, further NOK strength today on a hawkish Norges Bank sees further NOK extension higher.
Today’s FX Breakout monitor
Page 1: The US dollar breakdown in ready evidence here – at least versus the NZD, CHF, and EUR yesterday and today, with the USDJPY not far from a break level as well (see below). But the price action looks a bit hesitant after so many directional feints in the USD that have led nowhere this year. EURCHF breaks lower – an interesting move – possibly on Brexit stress worries. If so, headline risks next week could prove brutal in either direction.
Page 2: More unadulterated enthusiasm for EM here versus the US dollar in USDMXN and USDRUB, where recent breaks have led to a solid directional move. The Norges bank rate hike today thoroughly contrasting with dovish central banks elsewhere and supporting an extension of NOK strength across the board.
Chart: EURUSD
While EURUSD pulled above a local channel boundary and a nominal recent high, breakouts in both directions have led nowhere for months – a stronger surge-and-hold is needed for a sense that this will lead somewhere – the next round of resistance is up into 1.1800 if 1.1500 falls.
While EURUSD pulled above a local channel boundary and a nominal recent high, breakouts in both directions have led nowhere for months – a stronger surge-and-hold is needed for a sense that this will lead somewhere – the next round of resistance is up into 1.1800 if 1.1500 falls.
Chart: NZDUSD
The NZDUSD chart trying to break higher today, though intraday price action not terribly convincing and really, an unambiguous break above at least the December high close around 0.6930 needed here to excite interest in an upside break.
The NZDUSD chart trying to break higher today, though intraday price action not terribly convincing and really, an unambiguous break above at least the December high close around 0.6930 needed here to excite interest in an upside break.
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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