Head of FX Strategy
Summary: The US dollar has followed through broadly weaker, with EURUSD finally posting a new high close and even following through higher overnight. Elsewhere, AUD has been held back a bit by the RBA meeting and the Norwegian krone posted a significant new cycle low yesterday.
Today’s New Breakout Signals
Today, we have just a few new signals, including the EURUSD (and USDCHF) finally joining the other USD pairs late yesterday in showing USD weakness. As we flagged in yesterday’s post, EURNOK has now officially posted a major new low for the cycle and since early March, joined by NOKSEK as SEK has been caught in a neutral range against the euro lately. Finally, EURJPY has bounced back, closing at a new 19-day high after recovering from the news that Japan’s Prime Minister Abe is resigning.
Chart highlight: EURUSD
EURUSD closed at a new high for the cycle yesterday above the prior high close of 1.1931 and followed through higher overnight. Clearly, the 1.2000 level is the psychological barrier of the moment, and having extended this far, it would be a disappointment for fresh longs here if the pair closes back significantly below 1.1900.
Breakouts on the radar: USDJPY and EURCHF
Chart: USDJPY
USDJPY is one of the more interesting potential breakouts on the radar, having actually just managed to post a new 19-day low close on Friday in the wake of the Japan PM Abe resignation news. It is clear from the range established since the July 31 low that the 105.00-104.50 zone is the critical one for this pair if it is to develop any downside momentum.
Chart: EURCHF
EURCHF is another interesting chart for traders, as so many prior squeezes into this 1.0800-50 zone have failed to punch through. Note that the high 19-day and 45-day close is 1.0834.
Table: FX Breakout Monitor
Table: Most recent new breakout signals for each currency pair.
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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.
