GBPAUD recently broke above a descending trend line on its 4-hour time frame, indicating that price was in for a reversal from the downtrend. However, the pair found resistance at the 1.7700 major psychological mark and has started to make a pullback.
Applying the Fib tool on the latest swing low and high shows that the 61.8% level lines up with the broken trend line resistance, which might now hold as support. Price is already bouncing off the 38.2% Fib, though, as this area coincides with the moving averages.
The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside, likely taking GBPAUD back up to the swing high at 1.7700 or beyond. If so, price could complete an inverse head and shoulders pattern, adding confirmation that an uptrend is in order. Stochastic is on the move up after forming a bit of bullish divergence, also suggesting that buyers are taking control.
The RBA refrained from cutting interest rates in their policy statement earlier this week while BOE Governor Carney shared a somewhat dovish view during the Inflation Report hearings. Still, data from both Australia and the UK have printed stronger than expected results so far.
Australia reported a smaller than expected trade deficit for July, followed by strong import and export components in China’s August trade figures. This suggests that appetite for Australia’s raw material commodity products could stay afloat in the coming months, lessening the need for the RBA to cut rates.
In the UK, the PMI readings have all beat expectations, reflecting strong business performance even with the Brexit. Still, the UK has a bit more uncertainty in play compared to Australia so fundamentals might favor further GBPAUD weakness.
By Kate Curtis from Trader’s Way