Head of FX Strategy
Summary: NZD weakens sharply on a dovish RBNZ – suddenly looking at a downside break level after poking at resistance. Elsewhere, currencies can’t decide what to do on the conflicting signals of clear safe haven seeking in sovereign bond markets while equities zig and zag.
Today’s FX Breakout monitor
Page 1: The strength in sovereign bonds sees EURJPY poking near the downside breakout level today. Elsewhere, note that AUDNZD is nearly back at a 19-day highs just a couple of session after testing 19-day lows – more below. And EURCHF poked below the key cycle low area around 1.1200.
Page 2: A hold into the close above the break levels in USDZAR looks tempting for a long position as we discuss below. Elsewhere, AUDJPY has reversed nearly all of yesterday’s gains and change direction sharply for the third time in just a few sessions.
Chart: AUDNZD
AUDNZD is looking at a 19-day high today just a couple of sessions after poking to new lows for the cycle on the RBNZ’s dovish guidance. Trading against a former trend is difficult, but a move back above 1.0500 would suggest that the lows are in for this pair for at least a try back to the 1.0700 area.
Chart: USDZAR
This is a chart we brought up a couple of days ago and the upside break signal looks technically compelling on a close above 14.50-55 today – we’ll have a look at the price action into today’s close and early tomorrow for more guidance.
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.
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
