Head of FX Strategy
Summary: JPY crosses even more than USD crosses could prove quite volatile into early trading tomorrow if the FOMC meeting later today sparks dramatic swings in US bond yields and risk appetite generally. The Bank of Japan follows shortly after the FOMC as USDJPY is trading near pivotal levels.
The FX Breakout Monitor is back, and it is expanded with "autosignals" that show examples of how to trade new breakouts, defined as new 19-day high or low closes not preceded by a breakout in the same direction in the prior week. Click on the link below for a look at the full PDF of the table overview and the Recent New Breakouts tables. See further below for a couple of chart highlights related to today's monitor.
Today’s Breakout monitor
It is interesting to take a snapshot of the market here ahead of the onslaught of event risks that are the best chance in a while to break the currency market out of its recent torpor. Besides tonight’s FOMC meeting and the Bank of Japan meeting up overnight, we have important US data up Friday and early next week that could further spark a reassessment of risk appetite and/or the Fed policy trajectory from here. A few USD pairs have approached major support levels for the USD this week and even beyond in the case of some EM’s, but within the G10, USDCAD and AUDUSD are the closes to major breakout pivots (though USDCA less so today after the BoC).
Meanwhile, as we discussed extensively in today’s FX Update, while USDJPY has done the opposite, driven by rising bond yields. USDJPY already nominally broke to new highs for the cycle – but the key event triggers in coming days, not just the FOMC and BoJ later today and overnight, but also the US data – to which USDJPY is traditionally one of the most reactive USD crosses – all offer tests for whether the upside break unfolds in earnest or is stuffed back into the range – other major JPY crosses are also likely to show correlation and possibly higher betas to the moves in USDJPY. The EURCHF move toward and above breakout levels will also likely correlate with the direction of long bond yields and JPY crosses in the coming days.
Today’s Breakout Highlight: USDCAD
At the vanguard within the G10 of the softer US dollar recently is USDCAD and AUDUSD, with USDCAD having just completed a successful downside breakout (new 19-day low close on Oct 11 near 1.3200, with profit taking nine trading days (a few sessions ago) near 1.3070, so around 2.5 ATR, depending on entry levels. Now, breakout traders should be zooming out to the bigger picture, where the 2019 low daily close (1.3028) is in play if the Bank of Canada and FOMC combination today support the sell-off further – the Bank of Canada statement released just prior to the chart snapshot not CAD supportive as the BoC sounded a note of caution, but let’s see where the dust settles post-FOMC and post-US data on Friday.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
