GBP-USD Update ahead of May’s BREXIT Speech

Whatever the market being traded, there always will be a a question being asked at one moment: How far can  this go ? Clearly not an easy question to answer as this will invariably depends on factors that are partly unknown or difficult to estimate, such as fundamentals, market positioning or market risk amongst others. This  analysis aims to provide an assessments of how atypical the move experienced in GBPUSD is.

The below chart shows the GBP-USD over the period of January 1975 to January 2017 . On the 13 January 2017 it was trading around 1.218472.

plot of chunk chartdata

In the below I plot the previous 125 days against other similar historical periods that would have closely matched the recent history. The data has been normalised so as to be on the same scale. The chart shows the latest 125 days in black, and overlay similar historical patterns in grey. It Also shows what has been the price path for the following 125 days as well as the observed quartiles.

plot of chunk pattern

Finally I plot the last 125 days and a trend forecast derived from an ARIMA(0,1,5) model as well as the 95% confidence intervals. The ARIMA model is fitted to the past 625 historical values whilst ignoring the last 125 days, therefore we can look at the recent price path against the trend forecast and its confidence intervals to gauge how (a)typical the recent move has been.

plot of chunk arimaplot