GBP/AUD: What Would Yogi Do?

<p>The inimitable New York Yankees catcher, Yogi Berra, passed away today. Beyond his impressive baseball record, including 10 World Series rings and three Most Valuable […]</p>

The inimitable New York Yankees catcher, Yogi Berra, passed away today. Beyond his impressive baseball record, including 10 World Series rings and three Most Valuable Player (MVP) awards, Berra was also known for his humorous one-liners, affectionately called “Yogisms.” In honor of Berra’s memory, we’d like to analyze GBP/AUD through a series of Yogisms:

“Nobody goes there anymore. It’s too crowded”

Currency pairs tend to move in self-reinforcing trends, attracting more and more traders to the established trend until there’s no one left to buy or sell. Once a trend reaches the point when it’s “too crowded” it inevitably reverses (people stop “going there”).

In the case of GBP/AUD, it’s hard to argue against the recent bullish surge; to wit, the pair is up nearly 5,000 pips from where it was trading this time last year, and rates have tacked on 2,700 pips in just over the last four months alone. With the prolonged uptrend seemingly growing a bit long in the tooth, it’s certainly worth pondering whether we may be at an inflection point.

“When you come to a fork in the road … take it.”

GBP/AUD bulls have no doubt reached a fork in the road. The established uptrend remains intact, but the pair has recently struggled to break above the 2.21 level, which represents the long-term 61.8% Fibonacci retracement of the entire 2008-2013 drop. Unfortunately, “take the fork in the road” isn’t particularly actionable advice for traders, which is why Yogi advised that…

“You can observe a lot by watching.”

Like many Yogisms, this quote toes the line between an obvious tautology and brilliant insight. When it comes to GBP/AUD, the secondary indicators reveal a mixed view of the health of the current uptrend. The MACD indicator has rolled over and is now at its lowest level in about four months, though the RSI indicator is still holding above the key 45 level that has provided support throughout the entire uptrend. If this key level breaks, it would signal a likely end to the uptrend, but as long as it holds, the near-term bias will remain neutral below 2.21 resistance.

“It ain’t over ’til it’s over.”

Yogi’s most famous quote is particularly applicable in this case. While there are some strong signs that the GBP/AUD uptrend is weaker than it’s been at any point since Q1, there’s a reason that “the trend is your friend” is one of the most famous trading quotes. Until traders see GBP/AUD break below bullish trend line support and 2.1450, we’re inclined to give the established uptrend the benefit of the doubt.

GBPAUDDAILY9-23-2015 8-47-59 AMSource: City Index

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