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How’s it going, forex warriors? I’m steering clear of the dollar pairs ahead of the Thanksgiving holidays so I’m considering this GBP/AUD reversal setup instead.

I’m seeing a potential long-term reversal on the pair’s daily time frame, as a head and shoulders pattern just got completed. Price is trying to break below the neckline and the ascending trend line connecting the lows since last year.

A break below the 2.0900 level might be enough to confirm that a strong selloff is in the cards, possibly taking GBP/AUD lower by at least a thousand pips or the same height as the forex chart formation.

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

I’ve already shorted at market (2.0880) with a wide stop at the latest pullback to 2.1200 (Learned my lesson from my NZD/CAD short!) and an initial profit target at the 2.0000 super major psychological floor. That should give me at least a 2.75-to-1 R:R, and I do plan to add to my position if forex price action continues to head strongly my way.

I’m very bearish on the British pound mostly because of the not-so-hawkish BOE rhetoric these days, reflecting a huge shift from their previous policy bias which suggested that they’re ready to hike interest rates in early 2016. According to BOE Governor Carney in his Inflation Report hearings testimony, rates are likely to stay low for quite some time.

Meanwhile, there appears to be an unwinding of short Aussie forex positions from way back, partly spurred by the RBA’s shift to a less dovish bias. This was supported by stronger than expected data mostly on the employment front.

Here are the deets:

Short GBP/AUD at 2.0880, SL at 2.1200, PT at 2.0000.

I risked 0.5% of my account on this trade setup for a potential 2.75:1 return-on-risk but I still plan to add another position to press my advantage. Make sure you check out our risk disclosure if you’re planning to join me on this!


Happy time

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