Sonia and UK Yield Curve

From Sonia 7.000 highs in 1997, February 2009 experienced a first ever break of 1.000 to current price at 0.4665. The turning point in the UK was February 2009 as Sonia traded further first ever lows June 2009 at 0.3100, 0.3800 June 2014 and 0.3900 June 2015. March 2016 traded 0.4100. Current price is not only overbought and heading lower but pure signal is involved in Sonia’s price as it travels closer to the positive zero point. What a low price means is current UK 10 year minus 2 year yield spreads trade 0.984 while 10 minus 3 month spread factors to 0.91 and is the highest among the majors in 10 minus 3 month spreads except the United States at 1.48. Germany 10’s minus 3 month trades 0.69, Japan trades 0.50, Canada trades 0.75, Australia trades 0.15 and New Zealand 0.48. Switzerland trades 0.36.

Sonia’s current range from the 1 – 10 year monthly averages is found from the 1 year average at 0.4602 – 0.4844, a 242 basis point range and a quite comfortable position as the unknown outcome of Brexit nears. Below the 1 year average at 0.4602 next targets the 7 year average at 0.4600 then the 5 year at 0.4570, 0.4546, 0.4502 and the 2 year at 0.4462. Below the 2 year at 0.4462 next targets 0.4322 then 0.4227 and 0.4210, the average in the 2 year – 3 month yields. Above range point at 0.4844 is not likely to break anytime soon as not only Brexit weighs on that rate but last quarterly UK economic news lacked upside momentum. The point at 0.4844 then serves as the upside sell point.

In terms of ranges based on monthly averages from 1- 10 years, the range is located from the 3 year at 0.4401 – 10 year at 1.6695.
Targets are located first at 0.4641, 0.4622 and 0.4562. Targets then embark on a questionable climb to 0.4930 and 0.4964. The overall target far below within the current structure is found at minus 0.3780 which factors to 0.622 on the negative scale. The break below the 10 year at 1.66 is a slow moving line but is currently descending on the entire system of prices. The questionable assumption in 0.4900 targets is due to most extreme sell prices at 0.4719, 0.4884 and 0.4942. Long points below at extremes begin at 0.4485, 0.3982, 0.3918 and 0.3490. From current 0.4665, price is not only overbought but light years of downside remain despite a deeply and an historic low price. In terms of Peaks and valleys and other statistical measures, the current Sonia price is literally flat on the floor.

Brian Twomey, Inside the Currency Market, btwomey.com

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