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It took quite some time and a lot of patience on this one, but it looks like the bullish momentum I’ve been waiting for is finally materializing. Time to hop in a long GBP/AUD position?

Long GBP/AUD Idea

In case you missed it, my trade watchlist post from a couple of weeks back highlighted the test of the long-term ascending channel support on the daily time frame. At that time, though, I was having doubts that the pair could be able to make a strong bounce and resume its climb, so I opted to wait for more confirmation.

GBP/AUD Daily Forex Chart
GBP/AUD Daily Forex Chart

Fast forward to mid-September, I’m seeing a break past the short-term descending trend line connecting the highs since May this year. This move is supported by upbeat U.K. fundamentals as the economy just reported stellar inflation figures this week, reviving speculations that the BOE could come to a close vote to hike rates… or might even wind up doing so!

Jobs data hasn’t been all that positive, though, as unemployment declined but wage growth has lagged. A handful of policymakers have expressed concern about this, citing that low wages in a strong inflation environment could wind up dampening consumer spending and therefore overall growth.

With this event risk, I’ll stick to my original plan of having a wide stop below the channel bottom while setting my sights on the mid-channel area of interest at 1.7000 as my initial target. And if the BOE attempts to downplay the pickup in inflation and focuses on risks to growth, I’ll be ready to close my long position early.

Here’s what I have:

Long GBP/AUD at market (1.6535), stop loss at 1.6125, initial profit target at 1.6975 for a potential 1.07-to-1 R:R. 

I’m also gonna keep close tabs on Australia’s upcoming jobs release, although this just tends to have a short-term impact on Aussie pairs. Besides, analysts are expecting to see a dip in hiring for August and leading indicators that Forex Gump listed are hinting at a possible downside surprise.

On top of all that, iron ore prices have been on the decline as Chinese steel companies have been ramping up production ahead of the winter season and additional regulations from the government, dragging the positively-correlated Aussie along with it. Do you guys think I can catch a big win on this one?

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