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GBP/AUD took a dive this week but could be setup for a bounce soon. If so, will a restest of the broken previous support area draw in sellers once again?

Support Break-n-Retest on GBP/AUD Ahead?

GBP/AUD 4-Hour Forex Chart
GBP/AUD 4-Hour Forex Chart

GBP/AUD took a dive this week as Sterling bears came out big, thanks to weak U.K. economic updates prompted dovish comments from the Bank of England (hinting at a potentially more supportive monetary policy pretty soon) and the odds of a no-deal Brexit rose off of news that a plan to block a no-deal Brexit was blocked. On the other side of the pair, it seems that the Aussie has benefited from rising global risk-on sentiment behavior as U.S.-China relationship developments have been positive  during the G20 meeting, and possibly on the latest RBA monetary policy statement that hinted that interest rate cutting is likely on the back burner for now. Going forward, these main themes are likely to be the drivers for the next couple of weeks with no scheduled top tier economic events from either country to likely to disrupt the sentiment on the pair, at least not until we get to the employment updates for both Australia and the U.K. mid-July.

Until then, I’m bearish on the pair to play the themes discussed above and the downtrending price action, but after a near straight drop lower since the week open, it’s probably safe to say that a bounce may be in store soon.  Stochastics are signaling oversold conditions on the four hour chart above, and it’s that possible we could see some profit taking ahead of the weekend.

So, I’m going to be prudent with my entry by going with a scaling in plan if the pair bounces, looking for resistance to form around the short-term consolidation area between 1.8050 – 1.8150. And given that this pair’s weekly ATR is over 300 pips, it’s probably not too hard for this pair to bounce that high over the next week or two. My stop will be above the aforementioned consolidation area, which should give the trade plenty of room to breathe, and my max target will be around one weekly ATR from my average entry price for now. Here’s what I’m doing:

Short half position GBP/AUD at 1.8000, max stop at 1.8260, max target at 1.7700 with 0.50% risk

Short half position GBP/AUD at 1.8150, max stop at 1.8260, max target at 1.7700 with 0.50% risk

I’ll be risking 1.00% of my account if both positions are triggered, and my potential return-on-risk is about 2.60:1 for now. I’ll look to add further to the position or adjust quickly (i.e., cancel orders, close trade, reverse trade) depending on the latest data and geopolitical developments and how traders react to them.

Stay tuned for updates and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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.