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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money.
Summary: Today saw a further shift from JPY strength to JPY weakness, once again showing that the yen can only thrive when the pressure on risk sentiment is particularly intense. Elsewhere, the AUD is in the dumps as traders price in a June RBA cut and its commodity dollar counterpart CAD is riding high.
Most of the new extremes of late have been an extension of existing trends, in everything from AUD weakness to CAD strength, but perhaps the most notable switch in the last few sessions has been the JPY away from strength and back to the weak side, though the reversal is not yet profound enough to have reversed the recent uptrend in the yen across the board. Technically, the most interesting potential new breakout on the board is perhaps XAUUSD, although recent breaks in both directions have failed to extend – rather symptomatic of this largely trendless, low volatility market.
Breakout signal tracker
We tighten the risk significantly on the AUDUSD short and will look to take profit in the coming three days if the position survives the stop.
Today’s FX Breakout monitor
Page 1: GBP putting in a decent bounce today ahead of the 200-day moving average in EURGBP – the sterling sell-off may need to consolidate. Elsewhere, very little to note in the “new” column except that CAD strength has broadened rather profoundly on tariff relief and perhaps via its on-again, off-again correlation with the USD.
Page 2: USDSEK has poked to new multi-decade highs for the cycle, but so far the momentum is weak and we may need a EURUSD breakdown to support. The potential downside break in gold is the most interesting thing going at the moment as we look at in the chart below.
Chart: XAUUSD
Gold is close to the breakdown point to the downside, but note that trades may be treading with caution here after the prior two directional breaks proved mere head fakes. Still, traders may need to keep an open mind for downside potential if risk appetite continues to improve, bond yields tip back higher and risk appetite remains stable.
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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Macro: It’s all about elections and keeping status quo
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.
Equities: The AI and obesity rally is defying gravity
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.
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