Watching GBP/AUD for a Breakout

Forex Watchlist: 2014-08-06

Recent price action in GBP/AUD is setting up for a potential move lower, but I’m throwing it into the watchlist with major events coming up soon!

GBP/AUD 4 Hour Forex Chart

GBP/AUD 4 Hour Forex Chart

On the four hour forex chart above, we can see that GBP/AUD hasn’t really gone anywhere since finding a bottom around 1.7750 near the beginning of April.  But recently, I’m seeing a shift in behavior, not only with lower highs indicating selling strength, but also the pattern of rising lows seems to be threatened.  I think if broken, it also breaks the longer-term consolidation we’re seeing in the pair and may draw in more sellers.

Fundamentally, the recent weakness in the pair may be attributed to broad British Pound strength, highlighted in Forex Gump’s recent article: “3 Reasons Why the Pound Might Keep Dropping.”  In my opinion, while the U.K. is one of the better performing economies among the majors, there’s still a lot of profit taking that could happen to push Sterling down lower, especially after a year long rally.

Now, I’m going into watch mode because of this week’s major events for the pair: Australian jobs data and the Bank of England monetary policy decision.  The Australian jobs data has been mixed (unemployment rate ticked higher, while net jobs increase) over the last few releases, so we may not see a huge reaction as with the past releases. The crap shoot is the BOE’s Monetary Policy Committee’s statement this week as we’ve seen weak data since last month to possibility change the MPC’s outlook on the economy and future rate hikes.  I’ll look to put up orders as early as after the Aussie jobs data, but it all depends on what we get.  While low probability, there’s always the possibility Aussie jobs disappoints and the BOE’s ups the rate hike schedule…it’s better to be prudent in this type of situation.

So, I’m in watch mode for now, but I think this may be the best opportunity this week for big volatility and a momentum move, with potential for both the downside and upside.  Stay safe and stay tuned!