FX Breakout Monitor: USD strength broadening, a gathering storm?
Head of FX Strategy
Summary: After zigs and zags, the US dollar is showing its broadest strength in recent memory today – actually breaking higher in places and threatening to do so elsewhere. By early next week we should know if something is brewing here.
More whiplash intraday for JPY traders after this morning’s rally turned tail and then some later in the session, as gold prices dumped and the longer US treasuries finally sold off a bit. US dollar strength was prominent across the board, sending the greenback to new highs against some EM and now not far from a breakout versus CAD and the EUR and elsewhere in G10 as well. Still, we need to see another leg of directional momentum higher in the big dollar to suggest something bigger is afoot here.
Elsewhere, sterling sagged badly on the day, and we’ve got headline risk coming hot and heavy ahead of the weekend. Does a long delay actually provide further pressure on GBPUSD if the fear is that an extension of uncertainty works against the UK’s favour?
Breakout signal tracker
Our EURAUD short could just make the grade if risk appetite makes a comeback – next key event risk and decider for the position likely next Tuesday’s Reserve Bank of Australia decision. We are looking for long USD candidates for early next week if the USD punches through higher here.
Page 1: Note the proximity to breakout levels in EURUSD and USDCAD and even GBPUSD for starters (more on the last of these below). We like AUDNZD longs on a break higher from here, but already have long AUD exposure and would like a look at the RBA next Tuesday first. EURCHF continues to run lower and is below the critical 1.1200 level – is some of this on the Brexit uncertainty and sterling backup of the last couple of sessions?
GBPUSD looks in trouble of a thorough breakdown if a non-May deal approval leads to the risk of a longer delay and the pair is closing the week or trades early next week below 1.3000.
Gold and silver had very ugly sessions today, with silver closer to a pivotal level – the psychological and actual support level for both our short- and longer-term breakouts at 15.00. Note the 200-day moving average as well. A break could lead to a full probe into the cycle lows of 14.00.
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.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.