I’m looking at this textbook break-and-retest setup now that RBA head Lowe signaled scope for further easing and a lower AUD rate.
Think a bounce by GBP/AUD from the Fib levels is due?
Before we look at the setup, here’s a rundown of what happened in the previous session:
Currency Snapshot
Fresh Market Headlines & Economic Data:
- EU leaders reached a deal on Recovery Fund
- Japanese national core CPI unchanged in June vs. projected 0.1% dip
- RBA head Lowe: AUD rate broadly in line with fundamentals
- Lowe: Would like to see lower AUD but will not intervene in the currency market
- Lowe: Still possible to cut rates to 0.10% as inflation could stay low for longer
- RBA minutes: Easy monetary policy to stay as long as needed
- New Zealand credit card spending down 9.2% after earlier 20.6% drop
- Vaccine hopes boost Asian markets again
Upcoming Potential Catalysts on the Economic Calendar:
- Swiss trade balance at 7:00 am GMT
- U.K. public sector net borrowing at 7:00 am GMT
What to Watch: GBP/AUD
This currency pair recently busted through short-term resistance around the 1.8000 level and is in the middle of a pullback.
Applying the handy-dandy Fib tool shows that the 38.2% level lines up with this area of interest where more buyers might be waiting. If it holds as support, GBP/AUD could recover to the swing high and beyond.However, the 100 SMA is still below the 200 SMA to reflect the presence of selling pressure while Stochastic has plenty of room to move south before indicating exhaustion among bears.
It’s worth noting that RBA head Lowe sounded slightly dovish in his latest testimony, citing that he’d like to see a lower AUD value and that easy monetary policy could stay on.
Meanwhile, the mood in Europe could see some improvement as EU leaders already reached an agreement on the Recovery Fund.Just keep in mind, though, that risk-on flows have been observed in the earlier session as positive developments in COVID-19 vaccine trials have been reported.
Whichever direction you choose to play, just make sure you check out the average GBP/NZD volatility when you set entries and exits!