I’m seeing this possible reversal pattern that could spur a quick countertrend play on GBP/AUD. Do fundamentals line up or is this too risky to take?
Short GBP/AUD Idea
A double top pattern can be seen on the pair’s 4-hour chart as price made a couple of bounces off the 1.8850 minor psychological resistance and formed a neckline at 1.8100.
Support at this neckline is still holding, but a break below this could spur a drop that’s the same height as the chart formation. Stochastic is pointing down to indicate that bears have the upper hand, although the oscillator is closing in on the oversold region to signal exhaustion.
Looking at the daily time frame shows that the pair is still in an uptrend. GBP/AUD has dipped below the mid-channel area of interest and appears to be completing its retest, so it might set its sights on the channel bottom around 1.7750-1.7800 from here.
Market sentiment hasn’t been so kind to the Aussie last week as risk-off flows dragged the higher-yielding commodity currency for the most part. Still, sterling continues to face strong downside pressure on account of Brexit uncertainties.
I’m keeping close tabs on the BOE decision this week to see if the central bank is adjusting its stance to prep for a “no deal” situation, given how the race for the next U.K. PM is keeping this possibility in play. Taking a potential rate cut off the table could spur more losses for the pound.
I haven’t set any entry orders yet since I plan on watching the BOE event unfold before deciding on my bias. If the central bank maintains its relatively upbeat bias and the focus returns to global trade tensions, I might even consider catching another move to the channel top!
What do you guys think?
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