GBPAUD made a strong break past the key resistance around the 2.1400-2.1500 levels, before zooming up to the 2.2300 area. From there, the pair showed signs of pulling back and using the Fibonacci tool on the latest swing high and low on the 4-hour time frame shows that the 61.8% level lines up with the former resistance.
Stochastic and RSI are moving down from the overbought zones, both indicating that a correction is underway. However, the 100 SMA is still above the longer-term 200 SMA, confirming that the path of least resistance is to the upside and that the rallies are likely to carry on.
A bounce off the 61.8% Fib or any of the retracement levels could lead to a move back to the previous highs and beyond. On the other hand, a strong break below the 61.8% Fib might indicate that a reversal is taking place.
Commodity currencies such as the Australian dollar are suffering the brunt of the declines in the recent global market rout, as the selloff has been mostly blamed on China. The country has been trying to devalue its currency to spur export activity and has been implementing stimulus to shore up the equity market, but these are sending a signal that authorities are starting to panic.
With that, consumer and business confidence has significantly weakened in the country, potentially leading to a downturn in demand for raw materials from Australia, its top trading partner. This could mean more declines in commodity prices, possibly spurring more losses for the Aussie.
On the other hand, the pound has managed to retain its gains from the relatively hawkish BOE stance. Although the minutes of their latest meeting revealed that most policymakers are still feeling cautious, European currencies don’t seem to be so affected by the stock market selloff and are continuing to trade on improving fundamentals.
By Kate Curtis from Trader’s Way