I’m seeing a neat bearish channel short opportunity on this one, but longer-term techs suggest a potential bounce. Where might Brexit take this next?
GBP/AUD Trade Idea
On its 4-hour time frame, GBP/AUD is trending lower inside a descending channel and testing the very top around the 1.7550 minor psychological resistance.
To top it off, I’m spying a bit of a bearish divergence as price made lower highs while stochastic had higher highs. Once the oscillator starts moving south, the pair might follow suit and tumble back to the swing low or channel bottom.
However, zooming out to the longer-term charts shows that the pair is actually hovering at a key support region. At the same time, stochastic is indicating oversold conditions and is just waiting to climb out.
Not much room to go for sellers, huh?
Besides, pound bulls seem to be holding out hope that Brexit could be avoided altogether because of the latest developments. As it is, the odds are looking slim for PM May to get the transition deal through parliament in the December 11 “meaningful vote” and this risks her government collapsing.
I’m inclined to think that No. 10 will do everything in her power to avoid a leadership challenge or a “no deal” Brexit, so her options are to rally enough support from MPs to back the deal or look into reversing Brexit. Either scenario could pound bullish, but of course losing the vote could spur a sharp breakdown.
As for the Aussie, I’m turning bearish on this one due to weaker quarterly GDP and persistent trade tensions between the U.S. and China. Although the leaders agreed to a truce, a lot could still happen over the 90-day window and the uncertainty might keep a lid on the commodity currency’s gains.
I’m looking for an upside break of the 4-hour channel to confirm if the longer-term climb is set to resume or an actual test of the daily trend line to see if it would hold.
What do you guys think of my game plan?
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