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Evaluating SPX, EUR/USD, USD/JPY, GBP/USD Breakouts in Range Markets

Evaluating SPX, EUR/USD, USD/JPY, GBP/USD Breakouts in Range Markets

John Kicklighter,

Talking Points:

  • General market conditions are set to extreme quiet with thin participation and increasingly narrow ranges
  • Tentative signs of breakout for certain pairs and benchmarks should be evaluated with the 'big picture' in mind
  • We evaluate the breakout reach for S&P 500, EUR/USD, USD/JPY, GBP/USD and a few more Pound crosses

See the DailyFX Analysts' 3Q forecasts for the Dollar, Euro, Pound, Equities and Gold in the DailyFX Trading Guides page.

It seems logical when we consider it as a passive observer: breakouts and trend trades in range bound markets are low probability scenarios. Yet, when market conditions are quiet and technical boundaries are pushed, desire can sometimes overpower reason. This past session a few markets have shown a sudden surge in activity that have pushed technical breaks - from modest to substantial. It is tempting to chase these trades looking for follow through that has been in short supply lately. Yet, these are the circumstances where grounded evaluation is even more important.

Reviewing some of the more noteworthy technical events this past session, the Dollar's and S&P 500's move rouses interest. The Dollar tumbled on a limited engagement event risk (US CPI) which will have limited capacity for fueling trend so long as the broader market operates on limited participation and maintains a sense of uneasy complacency in the glow of global monetary policy. That casts are large shadow over the EUR/USD which broke above its 100-day moving average but find itself still in a dense range. Circumstances for USD/JPY are somewhat different with the connection to risk trends and the lingering threat of BoJ intervention, but that works against a transition to trend. Sentiment seen in the S&P 500 offered a modest break lower on extremely quiet conditions, but they would hardly register if it wasn't for the dead silence in the markets the past week.

For GBP/USD, the rally this past session was hearty and motivated by a stronger combination of data. What's more, there is more high profile event risk for the Sterling to absorb (UK employment statistics) through the upcoming session - which draws interest to classic breakout candidates like GBP/JPY and GBP/NZD. Yet, that additional data still likely falls well short of overriding the broader market conditions. That is not to say that Sterling pairs and other tentative breakouts that popup don't offer any trading opportunity. Rather, it means we must evaluate the opportunities for what they have to offer instead of what we want from them. We discuss breakout signals in range bound markets in today's Strategy Video.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.