FX Breakout Monitor: Strong dollar triggering solid breaks FX Breakout Monitor: Strong dollar triggering solid breaks FX Breakout Monitor: Strong dollar triggering solid breaks

FX Breakout Monitor: Strong dollar triggering solid breaks

Forex 7 minutes to read
John Hardy

Head of FX Strategy

Summary:  The USD bounceback is showing sufficient strength to potentially trigger breakout levels in AUD and NOK on today’s close ahead of next week’s pivotal FOMC meeting. EURUSD is also in the spotlight here for a potential break lower.


For a PDF copy of this edition, click here.

The US dollar is rallying on fresh Brexit uncertainty that is now dragging down the euro possibly as much as it is sterling, as well as weak Chinese data and soft French PMI data after a rather gloomy European Central Bank meeting yesterday. If the market closes where it is currently, the USD is actively attempting a break higher against the AUD, NOK and EUR as well as a couple of emerging market currencies.

As we are close to important breakout levels in other USD pairs like USDCHF, note the levels in the FX Breakout Monitor chart below and the proximity for USD pairs that have not yet broken. 

The tricky caveat for USD breaks right here is that action may get bottle up ahead of the Federal Open Market Committee event risk next Wednesday and the risk that the FOMC waxes more dovish than expected (though a fairly dovish shift looks to be priced in). Still, the technical quality of these breaks is reasonably solid ahead. We have a look at the three potential G10 USD pair breakouts, but do note that USDZAR and USDTRY are attempting breakouts and conditions for EM don’t look very friendly given weak economic data out of China and ongoing signs of weak risk appetite.

As well, note the possible NOKSEK break lower heading into next week after the recent post-big-slide consolidation.

Strategies for trading breakouts

We’ll follow up more on this front in future posts, but one strategy is to enter a position sometime early Monday assuming the breakout is confirmed on today’s close and then holding for seven to nine trading days and taking profit (multiple partial profits certainly a strategy) on any large surges in that time frame that takes the profit more than two or more times the risk on the strategy. The risk on the strategy (distance to the stop from entry) can be scaled to a bit more than one ATR (indicated on the FX Breakout Monitor tables for each pair) or a bit more if entry is established well beyond the break level. Stops can be moved to reduce risk once the position has moved than an ATR into profit, though arguably shouldn’t be trailed one-to-one with the price action.

We include a description of the FX Breakout Monitor tables below the charts.
FX breakouts
Source: Saxo Bank
FX breakouts
Source: Saxo Bank
Chart: AUDUSD

This is a fairly clear-cut break on a weak close today below the 19-day break level of 0.7190, which opens up the bottom of the range. The action next week will be highly sensitive to US-China trade negotiation headlines and the FOMC meeting.
AUDUSD
Source: Saxo Bank
Chart: USDNOK

Here we have both a 19-day and a larger, 49-day breakout potentially unfolding as USDNOK challenges its highest levels in over 18 months. The highest level reached back in early 2016 was right around 9.00, the ultimate resistance; this level may attract on a break higher in a strong USD environment.
USDNOK
Source: Saxo Bank
Chart: EURUSD

EURUSD break is technically valid locally, but the ultimate cycle low is still lower at 1.1216. Still, if the FOMC fails to wax sufficiently dovish next Wednesday, a clear break lower here could lead to a test into the next big round level (EURUSD has an affinity for round levels) at 1.1000.
EURUSD
Source: Saxo Bank
FX Breakout Monitor overview explanations

The following is a left-to-right, column-by column-explanation of the FX Breakout Monitor table:

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.

ATR
: Average True Range or the average daily trading range. This calculation uses a 50-day exponential moving average. The shading indicates whether, relative to the prior 1,000 trading days, the current ATR is exceptionally large (deep orange), somewhat elevated (lighter orange, normal (no shading), quiet (light blue) or exceptionally quiet (deeper blue).

UP and DOWN Break Levels
: These columns show how close, in ATR terms the current price is from breaking the highest and lowest prior 19- and 49-day daily closing levels, with the “breakout level” indicating the actual level of that highest or lowest close. If a breakout is getting close in ATR terms, it is highlighted in yellow or bright yellow (very close). If the current price is trading above or below the breakout levels, in other words, has just broken out, an “X” is shown to indicate this rather than an actual ATR reading.

NEW Breakouts
: These are indications of whether, at the time of the snapshot of the market, the currency pair is trading above or below the breakout level. NOTE: it is key that the intention here is to highlight NEW or initiail breakouts, as a pair that has been trending consistently and has set multiple (more than two) new highs/lows will not be highlighted. This is done to avoid too much noise on the chart and focus on new information. 

Number of breakouts for prior 8 days
: This is merely a counter to indicate the number of days in which the pair has posted a new daily 19-day or 49-day high or low close. It will flag currency pairs that have been trending strongly recently but aren’t actively breaking out at the time of the snapshot of the model and/or aren’t highlighted in the NEW Breakouts part of the table

Recent New 19-day Signals
: this gives the reader a chance to see if any recent 19-day breakout signals were registered over the prior three days for perspective on recent developments. The prior day’s signals particularly interesting if waiting for daily closes before deciding whether to trade a breakout on the following day. If there have been more than three prior signals over the past eight days, no signal is shown in order to reduce the “noise” on the overview (though all signals are tallied in the “number of breakouts…” column to the left). 

Disclaimer

The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.