Within the GBP framework, GBP/NZD, GBP/CAD and the new graduate GBP/AUD earns the distinction as most volatile due to most widest ranges while GBP/USD, GBP/CHF and GBP/JPY are currently less volatile and trade within shorter ranges. Inside the GBP context, GBP/USD, GBP/AUD and GBP/CHF will drive the GBP complex this week.
Last week currency prices were driven by USD and Non USD pairs and both combinations drove the cross pairs.. NZD/USD for example drove its cross pairs upon the RBNZ announcement while AUD followed. Friday, USD/CAD dragged GBP/CAD and AUD/CAD higher upon poor Canadian Retail sales and Inflation. This week I see the opposite as cross pairs will drive USD and Non USD pairs.
Among GBP pairs, GBP/USD, GBP/AUD and GBP/CHF are oversold while GBP/NZD, GBP/CAD and GBP/JPY are middle range. GBP/JPY is in assessment mode to the 12th Japanese economic experiment since WW 2 and many more since the 1868 Meiji Restoration. Every experiment ended in colossal failure. GBP/CAD is middle range until USD/CAD decides how overbought can one currency pair travel while GBP/NZD is always ready for takeoff.
GBP/USD from the 1.55 Brexit fall now trades from the 1.2956 close and dropped 2600 pips and is highly oversold from 1.55. GBP/USD dropped 4196 pips from July 2014’s highs at 1.7152 and dropped 6931 pips from 1.9887 at the August 2008 crisis.
The current base is located at 1.2700 and monthly bottom at 1.2200. Just above, supports are located at 1.2925 and 1.2871. Next above lies 1.3006, 1.3022, 1.3059, 1.3074 and the channel top at 1.3130. A must break of 1.3130 must occur in order to to see a run to most vital 1.3359 and 1.3411 then on to 1.3600 and 1.3700’s. The current strategy is a view to the channel top at 1.3130.
GBP/CAD. From the 1.7060 close, most important break points above are located at 1.7416, 1.7471 and 1.7500. GBP/CAD achieves those lofty goals by breaks of 1.7026, 1.7111 and 1.7167. GBP/CAD’s current price is the result of a failure at 1.7400’s. The current base is located at 1.6722 with supports at 1.6894, 1.7002, 1.7023, 1.7026 and 1.7091. Then on to 1.7167. GBP/CAD trades middle range and between 1.7091 to 1.7023. GBP/CAD is a wide ranging currency pair and has every ability to move far and wide on any given day. The strategy is buy drops and not touch the current price.
GBP/NZD. The granddaddy of currency pairs due to wide movements is currently in an uptrend upon the prior breaks at 1.7522 and 1.7426. To maintain the uptrend from the current 1.7893 close then 1.7817 and 1.7807 must hold. Next above comes 1.7935, 1.7942, 1.7962 then 1.8063 and 1.8065. Most vital to continue the uptrend is next major point at 1.7962. Overbought begins from 1.8130 to 1.8168 however 1.7962 must first break or GBP/NZD will correct lower to 1.7817 and 1.7807.
GBP/AUD. From current close at 1.7011, GBP/AUD is oversold and any drops to supports at 1.6965, 1.6939 and 1.6873 allows GBP/AUD to become more oversold. GBP/AUD earned its elite categorical status with GBP/CAD and GBP/NZD because recent drops opened GBP/AUD ranges. Vital break points above are found at 1.7600 and 1.7700’s while the current base is located at 1.6674. What decides if GBP/AUD trades to 1.7214 and 1.7219 is next break points at 1.7042, 1.7104 and 1.7131. GBP/AUD becomes middle range and aligned upon breaks at 1.7131 to 1.7219. The current channel top is located at 1.7319. The strategy is long on drops.
GBP/JPY. Big break points in GBP/JPY to see 136.00’s from the current 130.69 close are located at 138.26 and 138.39. GBP/JPY must travel above 133.20, 133.36 and 133.55 to consider 136.00’s. Next support is located at 130.38 and is crucial to GBP/JPY as next supports are found at 129.30 and 129.53. To travel higher, next resistance is located at 130.73 and 130.98 then on to 131.30 and 131.66. Next targets then become 132.31 and 132.37. Higher or lower for GBP/JPY is decided at 130.38.
GBP/CHF. Current focus shifted from GBP/CHF and CHF in particular because USD/CHF and EUR/CHF are set, ready and due for an explosive move. The question is does the move come from the CHF or EUR side as price ratios remain not only elevated for both but warn of an imminent breakout. Yet overall GBP/CHF is oversold enough to warrant attention as its current close price at 1.2579 is 500 pips from its next major break points at 1.3022 and 1.3057. The 5 year average for example is off the charts oversold and must travel to 1.2849 to again enter the radar. The current base point sits 200 pips below at 1.2330 and next resistance points are located at 1.2600, 1.2655, 1.2660 and 1.2675. Most vital is 1.2675 to target next 1.2729, 1.2747 and the channel top at 1.2787. The level at 1.2787 is vital as a break targets a run to 1.3000’s. Below supports are located at 1.2520 and 1.2469. To understand the GBP/CHF situation, 1.2579 is an exact level of support and /or resistance. Long dips is current strategy.
The overall commonality in GBP pairs is current prices are extremely low particularly GBP/JPY, GBP/NZD and GBP/AUD. Low means overall bottoms are close while GBP/USD, GBP/CAD and GBP/CHF are approaching its bottoms and remain very close. The key to GBP pairs is if the economic data agrees as expected to show signs of growth then all GBP pairs will travel far higher.
Brian Twomey, Inside the Currency Market, btwomey.com