JLS: GBPUSD Target Zone Analysis for Trading
The Fed and BoE managed the GBPUSD target zone for 10 % width of medium term exchange rate target zone in compliance to Louvre Accord but wider and narrower subject to the actual average traded weighted rate of GBPUSD to JPY, CHF and EUR at upper band/ceiling and at lower band/ceiling by their price stabilization/compression rate. The pair moved from their disequilibrium to equilibrium in compliance to equilibrium exchange rate.
At lower band/ceiling, BoE undertook sterilization to slower the weakening of GBP against USD as permitted by the central banks' consensus. The consensus allow for BoE to sterilize up to 50 % of the medium term exchange rate target zone to central band/central parity. This sterilization was opportunity for CHF and JPY carry traders for carry trading on GBP and GBP-denominated debt securities and to drive the GBPJPY and GBPCHF to upward wider than 5 % or wider than GBPUSD . However, both Fed and BoE maintained the GBPUSD to be sterilized up to 5 % or estimated 50 % of the medium term target zone as permitted by the consensus. Previously, I consistently stated that GBPUSD will not break 1.3300/75 no matter how high GBPJPY and GBPCHF.
The impact of the CHF and JPY carry trading activity however to put the GBPUSD to be prolonged at central band/central parity for the benefit of BoE. However, should the JPY and CHF carry trading activity to be dismissed then the GBPUSD be dropped sharply to downward to visit her new lower band/ceiling of medium term exchange rate target zone. The pair however may pauses at current actual lower band/ceiling before pressured back for another 5 % from the current actual lower band/ceiling. At such, GBPUSD may pauses at 1.2400/1.2600 before the pair pressured down for another 5 %. At what exchange rate the new lower band/ceiling is measured by the average weighted rate on the GBPUSD to JPY, CHF and EUR. However, the combination of price and percentage charting by this TradingViews could be useful to gauge the next 5 % price drop .
This methodology is based on the guidelines and procedures for the assessment and measurement of target zone and sterilization by the Fed and global central banks in compliance to Plaza, Louvre and EMS agreements. It was also publicated by CEPR and NBER.
At lower band/ceiling, BoE undertook sterilization to slower the weakening of GBP against USD as permitted by the central banks' consensus. The consensus allow for BoE to sterilize up to 50 % of the medium term exchange rate target zone to central band/central parity. This sterilization was opportunity for CHF and JPY carry traders for carry trading on GBP and GBP-denominated debt securities and to drive the GBPJPY and GBPCHF to upward wider than 5 % or wider than GBPUSD . However, both Fed and BoE maintained the GBPUSD to be sterilized up to 5 % or estimated 50 % of the medium term target zone as permitted by the consensus. Previously, I consistently stated that GBPUSD will not break 1.3300/75 no matter how high GBPJPY and GBPCHF.
The impact of the CHF and JPY carry trading activity however to put the GBPUSD to be prolonged at central band/central parity for the benefit of BoE. However, should the JPY and CHF carry trading activity to be dismissed then the GBPUSD be dropped sharply to downward to visit her new lower band/ceiling of medium term exchange rate target zone. The pair however may pauses at current actual lower band/ceiling before pressured back for another 5 % from the current actual lower band/ceiling. At such, GBPUSD may pauses at 1.2400/1.2600 before the pair pressured down for another 5 %. At what exchange rate the new lower band/ceiling is measured by the average weighted rate on the GBPUSD to JPY, CHF and EUR. However, the combination of price and percentage charting by this TradingViews could be useful to gauge the next 5 % price drop .
This methodology is based on the guidelines and procedures for the assessment and measurement of target zone and sterilization by the Fed and global central banks in compliance to Plaza, Louvre and EMS agreements. It was also publicated by CEPR and NBER.
Comment:
