GBP/USD, GBP/JPY, Sonia, Fed Funds: Levels, Ranges, Targets

The non interest to trade UK money markets Monday and Tuesday was caused by the Fed Funds close Tuesday at 1.07. Editorilly, non interest is defined as pure absent for interest rate traders and extremely rare days as UK money markets are highly active and widely traded daily. Mondays are understandable as a short range day due to remaining nations to adjust interest and exchange rates but Tuesday provided an early warning to problems as central banks under the new market control systems refuse to allow a currency price to travel to the extent of the ranges presented Monday and Tuesday.

Monday was recommended extreme caution in GBP/USD and GBP/JPY as ranges were set exhorbitantly wide for both pairs and enter under discretion Tuesday. GBP/USD was the driver Monday and Tuesday as Monday’s break points were located at 1.3128 and 1.3132. Today, GBP/USD is safely above its break points at 1.3136 and 1.3137. Further, Sonia dived from Monday’s 2147 to Tuesday’s 2140 and 2131 on Wednesday. We don’t trade question marks especially when EUR and other pairs are available.

Fed Funds over the past 2 years in every month drops radically 2 to 3 days per month and usually in the 2nd and 3rd trading week. Drops radically means for example a close from 1.16 to 1.07 as was Tuesday’s example.

The 2 to 3 day pattern changed in the last 6 months to a 1 to possible 2 day in the month radical drop. Last time 1.07 closed was September’s Non farm payroll day and now is seen 1.07 at month end. The radical close pattern changed to 1 day per month and at the worst possible times as Non farm Payrolls and month generally may see heightened volatility.

I cannot stress how important Fed Funds, USD and Monetary Policy affects the entire world. The Fed holds every card played and the remainder nations follow. Number 2 doesn’t exist because every money market system was designed based on the USD standard. UK monay markets finally normalized today after a 2 day absence. NZD as next in line to follow USD interest rates has seen a flux in its own money markets as NZD barely moved 100 pips for the week. AUD is far less thrilling as OIS rates are in unrest. The unaffected is Europe as they remain in comatose mode.

GBP/USD currently trades between 2 daily break points at 1.3238 and 1.3319. The overall top for today is 1.3382 and is 23 pips higher than yesterday’s break point at 1.3359 while 1.3319 is 35 pips higher than yesterday’s 1.3284. Below 1.3319 exists a large tract of real estate to the next break at 1.3238. GBP/USD must break 1.3278 for any shot to 1.3238.

Along the way to see lower the breaks are located at 1.3278, 1.3246, 1.3238, 1.3228 and 1.3212. Overall break points are located today at 1.3136 and 1.3137. Only a break here would see higher 1.2900’s quickly over next days. Overall upper target for today is 1.3346 on breaks at 1.3312 and 1.3319. We’re long at 1.3212 to 1.3228.

GBP/JPY remains far above its vital supports at 147.81 and 146.21. Support and break points today are located at 150.06, 150.47, 150.64 and 150.86 while breaks above are located at 151.70 and 151.94.

Brian Twomey