GBP/USD and Sonia: Levels, Ranges, Targets

When Sonia and Gilt Repos were last visited, the post explained the new BOE interest rate arrangements and presentation from its website redesign. Did the BOE really hide its most vital 3 month interest rate. Its impossible to do so nor can the BOE eliminate the 1 and 2 week Sonia rate because Sonia is the borrow rate and Repo the lend rate.

Why the 1 and 2 week Sonia rates at 0.36 are meaningless for the shortest term is because of the zero effect to the exchange rate as GBP/USD trades at 1.4000’s. The significance of the bottom is Sonia 3 month bottomed Aug 2017 at 0.31 and rose to 0.44 today for a mid point at 0.3750. Repo 3 month bottomed at 0.24 Aug 2017 and rose to 0.4950 for a mid point at 0.3675. The borrow low, lend high scenario juxtaposed Aug 2017 and GBP/USD went on a 1500 pip romp from 1.2800 to 1.4300’s and stopped just before 1.4400’s. A juxtaposed position is an MA crossover.

What is most vital to the story is not only the new presentation of interest rate charts over many years but the top question must be addressed first.

Wide territory in Sonia existed from 0.49 to 0.585 and this territory must factor as 0.5018, 0.5137 and 0.5375. But obviously we are at the longer end of the constructed curve and this is meaningless to the exchange rate. Today’s 0.49 factors as GBP/USD at 1.4285 and 0.5018 factors to 1.4398 while 0.5137 factors to 1.4512 and 1.4740 at 0.5375.

At today’s 0.45, GBP is well factored at 1.3949 but this represents a range point and a more vital break than an everyday trade able level. Therefore, today’s bottom is factored to 1.3958. Today’s 0.36 factors to 1.3038 and 0.44 to 1.3805 and no assistance.

Three range points exist above at 1.4093, 1.4109 and 1.4141 therefore the topside rises to 1.4141.

My presentations from 3 years of intense interest rate calculations are Levels, Ranges and Targets. Levels are trade able points that must trade in order for a price to move to its destination. A range point is vital to the life of a continuation in prices and Targets are just as the word implies. The Range is the most important, most misunderstood yet most fascinating to the currency price as a range break even by a 1 pip violation implies whether a price will continue on its present course or reverse in the opposite direction.

Today’s GBP/USD target is 1.4141 then it begins to drift to 1.4109 and 1.4093, 1.4062, 1.4033 and 1.4024.

Mush time was spent on GBP and Sonia therefore next posts I’ll demonstrate NZD and AUD.

Brian Twomey