GBP/USD, GBP/JPY, EUR/USD and USD/CAD Break Points

 

The common theme and drivers for the week’s currency prices are 20 day averages which means fairly normal price moves inside fairly normal volatility. If 5 and 10 day averages drove the price system then flat prices would rule the day with a view to breakout prices in days ahead.

GB?/USD today contains vital break points at 1.3131 and 1.3055 Vs Sunday open at 1.3051 and 1.3129. The range today fell 2 pips in overnight trading from 78 pips to current 76 pips. GBP at 1.3148 trades above 1.3131 and this day’s next upper break point at 1.3137. Next on the agenda above is 1.3161, 1.3194 and 1.3227.

Below 1.3137 and 1.3131 comes next vital breaks for this day at 1.3084 and 1.3061 which informs 1.3055 holds. Over next days and for MA traders, the 20 day at 1.3392 is vastly oversold at current prices and targets 1.3250’s.

What decides 1.3250’s are two vital points. The first is GBP/JPY as the only pair in the GBP universe to maintain over long periods a solid and positive correlation to GBP/USD. Without GBP/JPY correlation support, GBP/USD prices would trade far lower. GBP/JPY sits on solid supports at 146.72 and 145.15. The 20 day average at 150.35 like GBP/USD 20 day is vastly oversold.

Most vital to both GBP/USD and GBP/JPY is on the UK interest rate front as the BOE is currently protecting bottoms and preventing significant rises in normal market trading. The protections are vital because its non characteristic for the BOE which informs a current concern to exchange rate prices. Normally central banks and the BOE in particular allow price movements. The 1.3200’s based on the last weel’s interest rate curves will be tough tough breaks for GBP/USD.

What normal trading refers to the assumption UK and USD data maintain forecast release. Out of sync forecasts then a more significant move will be seen.

Why the BOE concern is due to lifetime trading lows for Sonia as well as UK repo rates. Lifetime lows mean Sonia since 1997 and Repo rates since 1963. Current UK interest rates are dangerously low and this point alone may force the BOE to raise. QE at 400 million is not as vital a concern as much as the low interest rate.

To view GBP/USD’s complement EUR/USD, it sits just above vital break points at current 1.1684 and 1.1646. At 1.1684, it rose 6 pips in overnight trading.

Further is a reinforcement view from USD/CAD on the USD side as current price sits just below its break point at 1.2619 yet today only CAD faces massive break points above at 1.2561, 1.2569 and 1.2611. For CAD today, 1.2619 holds.

While 20 day averages currently drive prices from as MA perspective, the vast majority of currency pair prices are on the verge of signiicant breaks yet for today, interest rates inform today is not the day to see those breakouts.

 

Brian Twomey

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