The 200 year 5 day rule concept in FX trading failed to signal for the second time under GBP and USD interest rate changes. A 200 year standard concept could never fail. The 5 day volatility trade rule shifted and it reallocated under the new central bank interest rate changes as well as the early 2015 market realignment. Under the new metric , the old 5 day rule as a speculation may last at most 2.5 days and 2.5 days represents 1/2 the distance to a 5 day average. Further speculation is the full move was complete yesterday as was the case for DXY.

Why the old 5 day rule held was all nation’s Libor rates had to readjust to new interest rate changes and all nations were affected. Under Libor elimination, internal focus on nation specific interest rates became the norm. GBP pairs made the big move yesterday but remainder pairs failed to follow. The new structure bifurcated currency pair prices from an all inclusive move in each pair to a specific move in 1 pair. Currency markets truly live under not only a realignment but a vastly different world than what was known since the 1972 free float.

Here’s an example directly from the BOE of a non serious, distorted and non tradable GBP/USD and GBP/JPY.
GBP/USD most vital break points today: 1.2903 and 1.2969 vs 1.3179 and 1.3246. GBP/JPY: 147.06 and 148.69 Vs 150.22 and 150.97.

View GBP/USD as above most vital break points from 2 lines at 1.3137 and 1.3134. At 1.3179 is reinforcement to contain GBP/USD lower. Shorts below 1.3134 should be the way over coming days. View today’s bottom at 1.3008. The 5 day rule will be quite interesting.

More realistically to trade complementary pairs to GBP/USD and GBP/JPY is EUR/USD and EUR/JPY.

EUR/USD remains above its most vital break point at 1.1639 but EUR faces resistance at 1.1786 so range = 1.1639 to 1.1786. Higher today must break 1.1679, 1.1694 and 1.1708 to target our price at 1.1723. Below, EUR/USD must break 1.1651 then 1.1634, 1.1619 and target at 1.1606.

EUR/JPY. Resistance points remain built into a higher EUR/JPY. Today’s break points are located at 133.12, 133.55 and 133.79. Look for 133.55 and 133.29 to contain the upside today.

EUR/JPY bottoms are located at 132.13 to 133.29. Overall most vital break points are found at 131.18 and 131.01.

EUR/JPY is vastly oversold yet EUR/USD faces next 1.1786 point 121 pips higher. GBP/JPY is vastly oversold from its support points at 147.86 and 146.25 Yet GBP/USD break points at 1.3134 is only 60 pips away. GBP/JPY and EUR/JPY have room to roam but GBP/USD and EUR/USD lack real estate to break points. Will Cross pairs drive EUR/USD and GBP/USD or will we see a reverse scenario.

Brian Twomey