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GBP/AUD kicks off this week’s watchlist as traders may ask whether the weekend gap and top tier events ahead present a short-term opportunity.

Intermarket Snapshot

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Fresh Market Headlines & Economic data:

Upcoming Potential Catalysts on the Forex Calendar:

  • BoE’s Broadbent speaks in London at 5:30 pm GMT
  • Reserve Bank of Australia meeting minutes at 2:30 am GMT (May 21)
  • Bank of England inflation report  at 9:30 am GMT (May 21)
  • Euro area consumer confidence at 3:00 pm GMT (May 21)
  • U.S. existing home sales at 3:00 pm GMT (May 21)

What to Watch: GBP/AUD

GBP/AUD 1-Hour Forex Chart
GBP/AUD 1-Hour Forex Chart

GBP/AUD kicked off the week by gapping lower, likely on a reaction to this weekend’s Australian election that saw the incumbent government stay put. It’s also likely that last week’s bearish pressure on Sterling carried over into this week’s trade.

So with gap week opens, general practice is to look for a fill back to the previous week’s close and for reversal patterns to show that a retest of that level will hold as support and resistance. That’s what we’re looking out here for today, a move back up to the 1.8500 area and bearish reversal patterns that could come given the recent downtrend and the fact this major psychological area did briefly hold as support. This area does look quite a bit away, but given that this pair’s daily ATR is in the neighborhood of roughly 140 pips, that 1.8500 retest scenario is not out of the realm of probability, especially given the upcoming catalysts.

Going into the Tuesday session, the RBA meeting minutes and the BOE’s inflation report could be the catalysts need for solid volatility in the pair, but to be honest, it’s a low probability if they do bring something new to shock the markets. But if they do and we see a combination of a somewhat not-so-dovish RBA and a BOE highly concerned with inflation, coupled with the technical retest of the 1.8500, then a short play is definitely something that should go into the queue as a potential live trade.

For the bulls, the break of the falling ‘highs’ pattern coupled with a hawkish BOE could be enough to draw in buyers of this pair for a short-term play, but the potential return-on-risk could be limited with the next resistance area around 1.8700.