Canada BOC Preview and Corra

Canada contains a uniqe system of interest rates to include its two main rates: Canada’s Overnight Repo Rate and the Overnight Money Market Finance Rate. Both trade below Canada’s headline at 0.75 and Corra always trades above OMMFR. The Target for the overnight rate typically trades between Corra and OMMFR but today trades below at 0.500 from Corra’s 0.5204 and 0.5037 for OMMFR. What this means for today is not a signal to the BOC to lower or raise headline. Its low because the data reported for CORRA and OMMFR is one day old and the market corrects such imbalances quickly.

Corra trades between its 1 and 2 year monthly averages at 0.5167 and 0.5665. Above 0.5665 comes next the 3 and 4 year monthly averages at 0.6319 and 0.6831. Corra averages from 1 to 10 year are perfectly aligned from 0.5167 and 0.8628 at the 10 year.
Corra is not only oversold in every average but its location imparts the next BOC move. From 0.5200, Corra is 23 basis points from headline at 0.75 and 14 to 15 basis points from its first extreme prices at 0.3800 and 0.3700. Corra’s current price is low and particularly from its longer term averages.

If Corra is oversold then OMMFR is oversold to a higher degree because OMMFR trades below Corra as a protection to Canada’s interest rate system. All Corra targets point higher due to oversold from 0.5187 to 0.6400’s.

Polooz and the BOC conceivably has room to lower yet to drop would leave the averages to far extremes. Further, to lower would be the last bullet shot for the BOC and I’m not sure the BOC is ready to fire especially if the FED continues its raise Fed Funds messages. From past quarterly and monthly BOC reports, its always been the desire for the BOC to drop CAD lower by allowing the FED to raise and provide the heavy lifting.

The further aspect to not lower is the BOC fails our rules to lower. In light of the evidence, the BOC reamins on hold.

GBP/USD; Realignment, Levels, Ranges, Targets

The preeminent explanation in currency markets and Realignment in particular is to view GBP/USD, USD/JPY and GBP/JPY. In USD/JPY and GBP/JPY, 1 year Correlations run +98% while GBP/USD V GBP/JPY +97% and +90% in USD/JPY V GBP/USD.

Currency market prices are severely imbalanced under a present Correlation scenario and the current situation not only lacks ability to hold but significant moves are ahead as Correlations must align properly. The main question is who will own the JPY cross pairs. In a continued risk off environment such as our present post 2008 framework then USD/JPY will own the cross pairs and EUR/USD and GBP/USD heads lower. If GBP/USD owns GBP/JPY then both head significantly higher and USD/JPY drops far lower to break 100.01 and 99.76. USD/JPY or GBP/USD must win control of GBP/JPY to determine the next or continued market phase.

Pre Brexit, GBP/USD and GBP/JPY correlated as high as +90% then +60 % just prior to GBP’s massive fall. GBP/USD, USD/JPY and GBP/JPY massive Brexit drop forced a new Correlational marriage among all 3 pairs yet a divorce is imminent and the Phoenix must emerge.

The first clue is USD/JPY is on the verge of a huge break at 103.74 while GBP/USD and all its cross pairs trade below 10 year averages. This situation cannot remain and its why Currency markets are headed for absolutely wonderful volatility especially all GBP pairs as not only Realignment must work its way through market prices but significant break points must be seen to complete Realignment.

Why an abstract, litle known and rarely seen scenario such as Realignment is important to traders is because as 1998 and 2008 revealed, trends will emerge and could easily last for years. EUR/USD and GBP/USD for example went on an upward multi year rampage after 1998 while post 2008 both dropped about 5000 pips. Its time for both to reverse. Under the worst scenario is volatility will remain. Respectfully, currency markets are in an incredible time presently. As we studied the 1998 and 2008 crash periods and Realignment, 10,000 exchange rates were entered to bring today’s vital information.

GBP/USD today is built upon solid bases at 1.2999, 1.2975 and 1.1944 with most vital 1.2999. Today’s bottom is ocated at 1.3014. To see bottoms, breaks must be seen at 1.3047, 1.3044 and 1.3030.

On the way down, 1.3160 must break then 1.3115, 1.3093, 1.3084, 1.3079, 1.3069 then on to 1.3047 and 1.3044.
Above big breaks still exist at 1.3224 and 1.3272. The longer range target as of today is 1.3543 with significant breaks above at 1.3698 and 1.3742. Lines are exact, daily yet dynamic and move constantly so forecast is today only.

Brian Twomey, Inside the Currency Market,