Head of FX Strategy
Summary: A number of US dollar pairs have seen the USD breaking stronger, but in most cases we continue to see a lack of further momentum from these developments, a tiresome continuation of the low volatility environment that has plagued FX for months. Elsewhere, sterling is trying to drum up some momentum on the back of a strong jobs report.
Today’s Breakout monitor
The FX Breakout Monitor is a concise PDF overview of all current and recent price breakouts for the short and medium term for major FX pairs and spot silver and gold.
A PDF of today’s Breakout Monitor
Below is a snapshot of the full list of currency pairs we track for the breakout monitor. Note that several of the recent USD breaks to the upside are showing hesitation after the recent USD strength that saw the greenback closing at new 19-day highs in a few of the USD/G10 small pairs like NZDUSD, USDSEK and USDNOK, although the last of these is holding after the populist Progress Party in Norway’s governing coalition quit the government in protest over the repatriation of the wife and children of an ISIS fighter.
Aside from the ongoing interest in whether this USD attempt to the upside will blossom, we note that the risk-off move from the corona virus outbreak in China has seen little feed-through into FX, although interesting to note the weak precious metals today, especially silver, which is threatening a new 19-day low as copper prices came strongly under pressure overnight (silver is a dual use metal, thus often a tug of war between its association with gold and sometimes divergent developments in copper, with copper mining and silver mining often coming from the same ore sources).
As well, and as we highlight below in GBPJPY, sterling is enjoying a strong bid today on the back of a very strong employment growth number from November and thoughts that the BoE may just hold off from cutting rates next Thursday.
Today’s Breakout Highlight: GBPJPY
GBPJPY is trading not far from the 19-day high close just above 144.00, also the highest daily close for the year, as the strong UK payrolls data today boosted the currency amid hopes on the bulls’ part that the Bank of England may consider holding off on cutting rates next week to see if the UK economy can post a comeback. Note that EURGBP downside breaks aren’t particularly far away either. The originally bearish-looking pump-and-dump over the UK election in December looks less bearish now in the wake of a lack of follow through lower and fairly steady price action in the ensuing several weeks. Still - seeing is believing in this environment of compressed volatility.
2024: The wasted year
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With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
