FX Breakout Monitor: USD soft on strong CNY and trade deal hopes

Today’s FX Breakout monitor

Page 1: after the failure of the downside breakout signal in EURUSD, that key USD pair is mid-range. USDJPY is not far from another upside break signal, but the USD is generally weak, with the JPY weaker still and actually beginning to break lower in places (EURJPY eyeing a potential break higher on close today, as is GBPJPY (see below). But a bit more volatility and range expansion would be helpful as weak trading ranges are in evidence almost across the board (as indicated by the dark blue shading of the current ATR). The pronounced NZD strength has NZDUSD close to a break level higher.  EURGBP is perched near the 19-day low close as we discuss below.

Page 2: GBPJPY is showing signs of continuing higher and AUDJPY is having its first look at a possible break higher as well – both of these likely to require a further extension of the tremendous extension higher in risk appetite from the January lows (with uncooperative bond yields the likely driver behind many of these JPY crosses struggling to trend higher). Elsewhere, interesting to note that USD/EM a bit reluctant to follow the CNY’s lead as only USDRUB and possibly USDMXN in play for a potential break lower at the moment.

Chart: EURJPY

EURJPY having a look at upside break levels today as the 19-day high close is up around 125.69, although daily trading ranges don’t offer much support for the idea that the market is heavily involved here. Note that the prior break attempt higher faltered rather quickly. 

Chart: NZDUSD

NZDUSD is poking near the range highs, the first DM/USD pair together with GBPUSD and USDCAD to look at local upside break levels. A Reserve BAnk of New Zealand speech is up later today and we don’t have any broad confirmation from elsewhere that the market is taking a strong view on the US dollar, so we’ll watch passively for now here and watch how subsequent price behavior shapes up – USD trends outside of USD/EM have been largely nonexistent so far this year.

Chart: EURGBP

GBP is looking at the range lows in EURGBP, but could be highly susceptible to Brexit headlines this week – particularly whether parliament takes more initiative from the May government to lessen the risk of a No Deal Brexit scenario. 

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.