Australia’s Trimmed Mean portion inside the CPI release rose as fore casted from 0.2 to 0.5 and sits at the 0.50 average and failed to break. Yearly Trimmed Mean at 1.7 remained and is not only far to high but its extremely overbought. Consider if the Trimmed Mean short term at 0.2 was oversold as reported then it had to rise but also it leaves the yearly Trimmed Mean in deeply overbought territory. The Trimmed Mean yearly now trades above headline at 1.0 and is a persistent problem for the next quarters ahead. The Trimmed Mean must fall below headline as a support to CPI.
For the RBA and its cut to OCR is so far not seen. What the last cut to 1.75 did for the RBA was leave OCR and AUD/USD at negative 14% correlations on a 1 year basis. The 2 to 5 year portion in averages is fine at 80% correlations yet 80% is extremely light. Under negative correlations, If the RBA drops OCR then it risks a persistently and unwanted higher AUD/USD over a long period in the future. What correlations reveal is OCR and AUD/USD are severely misaligned. Drop OCR then the misalignment deepens. Despite the 1% CPI and low, the RBA is severely stuck for now. To leave OCR at 1.75 then the RBA risks 0.7808 and 0.7888 at its top on a 1 to 5 year trend line. The bottom side on a 1 to 5 year trend line is wide open to see far lower prices yet what remains is the big breaks below at now 0.7468 and 0.7452.
GBP/USD today is built upon a base at 1.3074 and 1.3072 and today’s bottoms are located at 1.3067 and 1.3056. Further bottoms are supported and slowly rising by the day at 1.3029 and 1.3011. Any lower price especially in the 1.2800 and 1.2900’s is not only extraordinarily oversold but the overall GBP price is on the floor low.
The topside channel is located at 1.3340 and 1.3329 with a break to allow a run to the big average break at now 1.3673 from 1.3700’s in previous weeks. The point at 1.3673 is dropping by the day and can’t sustains any GBP rises. GBP/USD must break 1.3237 and 1.3257 to see any chance to 1.3300’s. Further, resistance is built into current prices from 1.3119 to 1.3191 specifically 1.3122, 1.3137, 1.3145, 1.3168 and 1.3191. Until the logjam is broke, GBP entered into range trading yet range trading inside wider intervals than its counterpart EUR/USD.
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Brian Twomey Inside the Currency Market, btwomey.com