Currency market: Sonia averages, BOE watch, GBP/USD

As GBP Libor ends for this month of December, Sonia and Ronia are the only transition interest rates and Sonia as most vital. As the Sonia panel from the BOE discussed, the reason for such a huge GBP jump last month was due to the vast majority of GBP liquidity attached to short-term instruments.

With the false hype of BOE raise, nobody valued a raise or no raise decision but decided to avoid risk. Once the decision was reached, a massive readjustment occurred and liquidity added to GBP and all financial instruments.

Liquidity defined by OIS. OIS is factored from average money and number of Sonia and Ronia transactions Vs the rate at each transaction.

Note from yesterday Sonia's 6 point spread to headline. All GBP trading in exchange rates derivatives, yields and the whole GBP market complex is traded within Sonia's 6 points. The FED , Fed Funds and all central bank overnight rates applies to the same tiny moves. This is the new Risk-free interest rate concept upon Libor elimination.

The 6 points are defined and traded within small percentiles to highs and lows and to hold the 6 point boundary. For Fed Funds to equal Sonia's 6 points then-Fed Funds trades 3 points per day and right at 3 ish points for Eonia and the ECB's Euronia Repurchase Agreement Rate index.

Traded within the 6 points per year are 30 trillion GBP to Sonia Futures, Swaps, derivatives of all sorts to include Floating Rate Notes.

DXY from Fed Funds 3 points yesterday traded 10 pips, 48 pips Monday and 38 points Friday. GBP/USD due to 6 points traded yesterday 48 pips, Monday 64 pips and 60 pips Friday. As GBP Libor eliminates completely and Sonia trading is more perfected, GBP/USD daily and weekly ranges will substantially drop. This includes all currencies, all financial instruments and all central banks.

I applied GBP/USD for example to the new 6 point arrangement and what's coming is today's ranges drop to just at 1/2. GBP/USD at 60 ish pips per day already dropped by 1/2 and will drop another 1/2 very soon.

The rude awakening will come to those trading by charts, indicators and Fibs as a severe adjustment is required to strategies. View NZD/USD and the RBNZ 50 point raise. NZD/USD traded 100 pips.

The same principle exists today as in January 1972 when the free float by interest rates began. A currency or financial instrument moves and trades by an interest rate. No movement by an interest rate then no movement to currencies and financial instruments.

The difference today from 1972 is central banks killed off interest rate market movements so in turn killed off traded markets. All market price action moved and will move to banks to trade buy/ sell and lend/ borrow rates, repurchase agreements and derivatives within tiny 6 and 3 point channels.

For interested, the BOE contains every month all Sonia information, market notices, charts and graphs. Once, they published vital numbers but moved today to charts. WMBA Limited contains all Ronia information, charts and graphs. Secondly, despite changes ahead, Brian Twomey is well prepared.

Sonia

Sonia's average move from 1 year to 5-year monthly average is 22 points. A 25 point rise maxes the average.

From 0.0457 and today's 0.0468, Sonia trades below 0.0493 then 0.1466 and 0.3337. A BOE rate rise to 0.20 places Sonia targets to clear 0.0483, 0.0493, 0.0731, 0.0808 and 0.0888. Sonia then trades from 0.0493 to 0.1466 at 0.14 and bumps against the average at 0.1466.

Sonia's average move per month however is barely 10 points. Assisted to the rate rise scenario is 0.0493 is severely oversold but the target is 0.0483 or 0.0015 points or 15 thousand.

Sonia oversold begins at the 4 and 5 year monthly averages to the 10-year monthly average. Any Sonia drops factors to more oversold from 4 to 10 year monthly averages. The 5-year average is located at 0.3543 and 10 years at 0.3935.

An interest rate rise is on the way and a higher GBP/USD but the question is when and how far. The mid point from the 5 years to 0.0493 is located at 0.20 and places headline at 0.25. The midpoint from the 1 to 10-year average is found at 0.2214 and headline at 0.27.

The BOE Watch tool reports today 100% no change Vs 52.5% yesterday and 37.5% 1 week ago.

How good is BOE Watch. I have 38% but a step further as Odds at 48% raise Vs 51% against from 0.046 to 0.049. The BOE Watch tool is accurate.

GBP/USD for the week traded 90 pips and within 2 vital points at the 5-year average at 1.3109 to 1.3361.

For today, GBP/USD shorts at 1,3304 and 1.3296 to target 1.3245. Then short 1.3238 to target 1.3186. Long 1.3186 to target 1.3205. Longs and shorts are traded to maximize profit pips.