Forex 5 minutes to read

FX Breakout Monitor: A near-clean sweep for the dollar

John Hardy

Head of FX Strategy

Summary:  EURUSD blasted lower yesterday for its lowest close in almost two years, further cementing the recent USD surge. Elsewhere, emerging market currencies are coming under further pressure, the bottom has dropped out of SEK and the JPY is breaking higher in places.


For a PDF copy of this edition, click here.

The US dollar made a near-clean sweep of breaking higher yesterday, with only the Japanese yen able to put up an overnight fight against the hard-charging greenback. The most notable recent development was the EURUSD breakdown below 1.1200 and the nominal lows beneath that level, taking the benchmark pair to its lowest rate since the early summer of 2017. 

Elsewhere, SEK was mauled by a dovish Riksbank that delayed guidance on the timing of the next rate hike and JPY has now sustained sufficient strength to close higher versus GBP and AUD if current market levels hold.

Breakout signal tracker

We are adding a EURUSD short today after yesterday’s break lower. Because this would merely approximately double up our existing USDSEK long (we are already long EURSEK), we’ll remove the existing USDSEK after the impressive move that delivered more than 2.5 times the risk to the stop on the signal.
Source: Saxo Bank
Today’s FX Breakout monitor

Page 1: the USD surge is a clean sweep across the board save for USDJPY, which poked above 112.00 yesterday before reversing sharply overnight. Indeed, the yen is quite the holdout and is even pushing against breakout levels to the upside versus the euro (downside EURJPY break). USDCAD enthusiastically enjoyed the strong USD parade yesterday on the dovish Bank of Canada guidance. Elsewhere, and nonetheless, we are interested in the prospects for a downside break in AUDCAD and maybe even GBPCAD.
Source: Saxo Bank
Page 2: Note that AUDJPY and GBPJPY are mulling downside breaks for the 19-day horizon. As well, we saw strong confirmation of the recent SEK downside breakouts on a very dovish message from the Riksbank today. And among EM currencies, Asian EM FX continues to trade lower versus the US dollar, USDMXN is close to a 19-day high close and USDZAR is nearing a new 49-day high close.
Source: Saxo Bank
Chart: EURUSD

The most obvious focus today is on EURUSD as it enthusiastically participated in the strong USD story by clearing all prior lows. Naturally, traders will remain nervous here, as prior attempts at major and minor range breaks have all failed to generated further directional momentum, but the trend/momentum trader’s job is to trade the signals, and yesterday provided one.

Some next steps lower could include the big round 1.1000 area and then the 1.0865 level (i.e. the 76.4% Fibonacci retracement of the entire move from the early 2017 lows below 1.0350 to the 2018 high of 1.2555).
Source: Saxo Bank
Chart: USDCAD

USDCAD joined the strong-dollar parade as dovish BoC guidance eliminated the rate hike bias and sent short CAD yields tumbling. Not much room remains to the top of the trading range into 1.3650-plus, but a bigger move could be afoot if crude oil prices reverse their recent torrid pace.
Source: Saxo Bank
Chart: GBPCAD

Sterling versus CAD (we will also investigate the likely more volatile GBPJPY) is an interesting pair for those seeking isolated sterling weakness on a weak UK credit impulse and the drag from Brexit uncertainty. We would also note the clear range level, even if this isn’t a sterling pair on most GBP traders’ radars.
 
Source: Saxo Bank
Chart: AUDJPY

The JPY strength has picked up sufficiently that breaks are beginning to unfold in JPY crosses – among these, AUDJPY locally (a new, 19-day low close in play today) but potentially on a longer-term basis over the coming sessions after this week's soft Australia CPI release took AUD sharply lower.

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.

Disclaimer

The Saxo Bank 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. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

International

Trade responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.