Sterling has been on a tear for the past few weeks but I’m seeing a chance to catch a pullback on GBP/AUD this week. Think I should hop in at market or wait for a larger correction?
Long GBP/AUD Idea
The pair has been trading in an ascending channel since mid-March and has formed a double bottom chart pattern on its daily time frame, signaling that a long-term uptrend might be due.
Price seems to have broken past the neckline at the .7100 major psychological level but is currently pulling back to this area of interest.
On the 4-hour chart, it can be seen that GBP/AUD is currently sitting at the mid-channel area of interest, still deciding whether to resume its climb back to the top or to make a larger dip to support around the 1.7000 handle.
Price has formed higher lows while stochastic had lower lows, creating a bullish divergence on this time frame. This is another signal that buyers could be eager to get back in the game, but I think I’ll wait for stochastic to pull up before going long.
For now, I’ve got my one good eye locked on the 1.7100 and 1.7000 levels to spot an opportunity to buy this pair.
I’m bullish on the pound because the U.K. economy continues to show resilience even with Brexit uncertainties, and it looks like Prime Minister Theresa May’s decision to hold snap elections has been positive for the currency.
On the flip side, I’ve got a bit of a bearish bias on the Australian dollar due to the recent disappointments in Chinese PMI, both on the manufacturing and non-manufacturing fronts.
Over the weekend, the official manufacturing PMI printed a drop from 51.8 to 50.2 while the Caixin version released earlier today is down from 51.2 to 50.3, both indicating that industry expansion has slowed down.If I’m able to go long, I’ll set my stop below the channel support and I’ll aim for highs past the resistance around 1.7400.
Note that the double bottom on the daily time frame is around a thousand pips tall so I’m looking to catch a swing long position on this one. But I also plan on moving my stop to entry once price tests the recent highs around 1.7365.
As always, don’t risk more than 1% of your account on a single trade and make sure you read our risk disclosure if you’re thinking of taking the same setups.
This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.