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The Australian dollar is on the move early this week, pushing GBP/AUD to rest the bottom of a clear range. Will we see a short-term breakout or reversal ahead?

Intermarket Snapshot

Equity Markets Bond Yields Commodities & Crypto
DAX: 12917.00 +0.12%
FTSE: 6134.93 +0.74%
S&P 500: 3384.13 +0.33%
DJIA: 27875.42 -0.20%
US 10-YR: 0.68% -0.029
Bund 10-YR: -0.444% -0.024
UK 10-YR: 0.221% -0.023
JPN 10-YR: 0.043% -0.006
Oil: 42.56 +1.31%
Gold: 1991.70 +2.14%
Bitcoin: 12155.21 +2.15%
Ethereum: 430.66 -0.50%

Fresh Market Headlines & Economic Data:

Oil edges lower on rising virus cases, U.S-China tensions

Empire State Manufacturing Survey for August 2020: 3.7 vs. 17.2 in July

National Association of Home Builders/Wells Fargo Housing Market Index jumps +6 to 78 in August

Germany’s Finance Minister Proposes 10 Billion-Euro Plan to Safeguard Jobs

France records more than 3,000 new Covid-19 cases for second day in a row

Italy to shut nightclubs and make masks compulsory after spike in cases

UK housing market surges in busiest month in 10 years

Foreign investors reduced their holdings of Canadian securities by $13.5 billion in June

New Zealand Services PMI: unchanged in July at 54.3 vs. June (seasonally adjusted)

New Zealand Election Delayed Amid New Coronavirus Outbreak

Japan’s economy shrinks at record rate, slammed by pandemic

Japan Revised Industrial production for June: 1.9% m/m

Japan calls for G7 coordination to spur global growth, combat pandemic, finance minister Aso says

Quick and affordable saliva-based COVID-19 test developed by Yale scientists receives FDA Emergency Use Authorization

New Zealand’s COVID-19 outbreak grows, as Australian cases ease

Upcoming Potential Catalysts on the Economic Calendar for U.S. & Asia:

U.S. Net Long-term Tic Flows at 8:00 pm GMT
Japan Tankan Index at 11:00 pm GMT
RBA Meeting Minutes at 1:30 am GMT

What to Watch: GBP/AUD

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

Checking out the one hour chart above of GBP/AUD, we can see a pretty clear ranging pattern with sellers holding the 1.8350 area and buyers defending the 1.8150 are pretty well. We’re currently seeing a retest of the bottom of the range, which presents a potential opportunity for both bulls and bears on the pair.

If you’re a bull on the pair, this could be a fresh buying opportunity to play the strong support behavior at these levels we’ve seen throughout August. We’ve also got stochastic showing oversold conditions, another technical argument that may draw in short-term buyers / spark some profit taking from the bears.

No major catalysts ahead through the next session, but if broad risk sentiment flips negative on a fresh catalyst (i.e., negative U.S.-China tension headlines, global economic recovery fears), then the odds of a bounce at current levels rise considerably. With a good catalyst, a move to the middle of the range is reasonable within a session given the daily ATR of around 140 pips.

For the bears on this pair, we’ve got broad positive risk sentiment currently pushing the pair lower, a theme that could continue with no major news / headlines / data expected for the rest of the session.

This makes a break below 1.8150 an attractive short entry signal, but given the strong move lower on the session, it may be a good idea to wait for a bounce or scale into a short position up to the middle of the range. In that scenario, look for bearish reversal patterns between 1.8200 – 1.8250 before considering a short idea.