GBP/AUD could Reach 2.00

GBP/AUD is moving higher and could reach near 2.00

With all the talk lately about outcome of the elections, Sterling has gone bid vs many of the counter-currencies as it seems the outcome will be favorable to a Brexit deal.  While much of the currency talk has been centered around GBP/USD and EUR/GBP,  don’t forget Cable vs the Australian Dollar.  The Australia Dollar is very sensitive to the US-China trade war.  Aussie traders appear to be skeptical that a trade deal is “Done”, and it seems they are waiting for more details to come out before buying Aussie.  As a result, GBP/AUD is moving higher and could reach near 2.00, a level not seen since May 2016.

On a weekly chart, GBP/AUD has been trading in an upward sloping channel since October 2016.  The pair has retracement 50% of the selloff from the highs in August 2017 to the lows in October 2016.  The pair has room within the channel to push higher towards strong resistance between 1.9700 and 2.000, as the weekly RSI is not in overbought conditions.

Source: Tradingview, City Index

On a daily, the pair held the 50% retracement level from the lows of October 9th to the highs of October 16th, and its move higher.  We also can get a better view of the 1.97/2.00 resistance range.  1.9700 was near the highs on June 2016 and 2.000 has been a pivotal point heading back to early 2015 (see weekly).  In addition, within that zone of resistance is the 61.8% retracement level from the highs of August 2015 to the lows of October 2016.  The top long-term channel trendline also comes across near that level.  However, notice that the RSI is beginning to diverge with price, a sign that the pair may not move higher in a straight line.

Source: Tradingview, City Index

On a 240-minute chart, GBP/AUD formed a bullish pennant formation.  The target for a bullish pennant is the length of the flagpole for the pennant added to the point where price broke out of the pennant.  In this case, the target is right at the lower end of the resistance zone at 1.9702.  Once again, notice that the RSI is diverging with price, so GBP/AUD may get a pullback before moving higher.  The is also a small rising wedge which looks ready to break lower.  The target for a rising wedge is a 100% retracement of the wedge, which would be near 1.8900.  First support is recent lows from December 6th, near 1.9150 and below that price can move down to horizontal support near 1.9100.

Source: Tradingview, City Index

If Johnson wins the election and a majority, GBP/AUD could reach near 2.00 rather quickly.  However, most other scenarios will caution buying of Sterling, in general.  Also, if a US-China trade deal gets signed by the end of the week or if the December 15th tariffs get delayed, Aussie may go bid. This may result in the  pullback GBP/AUD needs in order to unwind the RSI before heading higher.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.