GBP/USD, Cross Pairs and Brexit

On year 3 year of the Brexit anniversary asks the question how devastating was the GBP fall. The analytical answer must view in the context of the 2500 pip parameter for the most widely traded exchange rate combinations of EUR/USD, USD/JPY and EUR/JPY from 2000 -2008 and 2008 – 2015.

A 2500 pip move in any direction was met not only by a brick wall of resistance but a large correction was the only alternative for a long period of time until or unless the parameter walls moved to allow a further continuation past the 2500 inflection point. GBP/USD however due to its wider ranges is afforded nearly a 3000 pip parameter yet 2500 generally serves its purpose to comply with corresponding non GBP currency pairs.

GBP/USD fell from 1.5000’s -1.1800’s or roughly a 3200 pip move and now sits at 1.2500’s. The 66 year historical context to 1.2500’s dating to 1953 is 1.2500 is a non existent price and never before seen except for the August 1984 -May 1985 Plaza Accords when the G5 nations engineered USD higher. GBP/USD traded then 1.04 lows to 1.1900 highs. Subtract the Plaza Accords equation then 1.2500’s now trades in uncharted territory.

From the 2008 crash highs at 1.8891 to 1.2513 lows, the 11 year mid point is located at 1.5702. The 66 year mid point from 2.8151 -1.0438 lows is located at 1.9294. From the 1972 free float from 2.6189 -1.2513 lows, the mid point is located at 1.9351.

The BOE’s 21 year governing interest rate, Sonia, traded 4.9970 at the 2008 crash and dropped to 0.4099 April 2009 and its 11 year mid point is located at 2.70. From April 2009 -June 2016, Sonia monthly averages reported a paltry range from 0.4099 – 0.5486 for a 0.4792 mid point. Upon the Brexit announcement, Sonia dropped from 0.4598 highs -0.2106 lows for a 0.3352 mid point. Sonia now trades since September 2018 at 0.70 and hardly moves from its 0.70 base and 0.70 is a long way from the 21 year mid point at 3.88.

How devastating was Brexit is explained by GBP/USD, Sonia and headline interest rates trade at historic lows never before seen in the UK’s rich and glorious history.

Forecasts

GBP/USD to reach a fraction of normalization must trade to a minimum of 1.2900’s against a longer term target at 1.3600’s. The governing average today is located at 1.4700’s and 1.5200’s 1 year ago. Currently 1.2500’s is deeply oversold. We’re looking at absolute bottoms at the 1.2300 -1.2400 vicinity.

GBP/AUD trades below its vital break point average at 1.8500’s but at 1.7900’s faces its range low point at 1.7400’s. GBP/AUD is a range currency pair for the most part but afforded wide latitude within its ranges and once traded 1976 lows at 1.2700’s but lived the majority of its 66 year history at 2.000;s.

GBP/JPY must trade to its minimum normalization point at 142.00’s and 143.00’s against its long term target at 147.00’s. Historical 66 year first ever lows were seen in 2011 -2012 from 117.00’s -126.00’s.

GBP/NZD must trade to ts minimum normalization point at 1.9300’s. GBP/NZD at 1.8800’s is the result of the 1300 pip drop from 2.0100’s. At 1.9300’s is fairly respectable for GBP/NZD.

GBP/CAD must trade to 1.7100’s just to reach a respectable normalization. GBP/CAD’s 66 year history traded 2011 -2013 lows from 1.5200’s to 1.6400’s. At current 1.6300’s, GBP/CAD trade its post crash lows.

GBP/CHF must trade to 1.2800’s against a longer term target at 1.3200’s. At 1.2300’s, GBP/CHF trades in uncharted territory in relation to its 66 year history which began at 11.0000’s and 12.000’s. Only one time, Oct 2010, GBP/CHF closed at 1.2100’s. In 66 years, GBPCHF downtrend has been slow and steady and now trades at its lowest ever seen points. Brexit allowed a continuation to the downtrend.

 

Brian Twomey