Technical Sentiment: Bearish
- The bullish sentiment for the Australian Dollar persists as Chinese economy remains strong (Trade Balance up 35.9B vs. forecast 22.6B)
- The Sterling has a bullish bias as well, with Unemployment Rate expected to drop to 6.7%;
- GBP/AUD risks major losses if price dips below the 200-Day Moving Average.
During the first two trading sessions of the week GBP/AUD continued its grind toward lower levels, in tune with last week’s trend. Short traders will soon be running straight into a couple of major support levels between 1.7829 – 1.7936. Bullish reactions in this area – or lack of any reactions – will ultimately decide just how far the sell-off can continue.
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The pair is currently trading around 1.7955, just above 30th May Low – priced at 1.7937. As traders are going to test this level soon, it should be noted that a breach below it will also expose the recent support trendline which is treading the 1.7900 area, as well as the 200-Day Moving Average.
Stochastic is entering oversold territory on the Daily chart, suggesting that the current bearish cycle might be coming to an end soon. Having the 200-Day Moving Average in close proximity, less than 80 pips lower at 1.7875, brings up the idea of a possible bounce happening this week. Target toward the upside remain are located around 1.8136, followed by the 100-Day Moving Average 1.8244 and the May’s Top at 1.8332.
The scenario of a bounce will be invalidated if GBP/AUD closes below the 200-Day Moving Average and also breaks through the previous Higher Low at 1.7829. The pair would then be in bearish territory on the Daily chart. If the pair does triggers stop losses from long term buyers, losses could accelerate toward 1.7737 in the short term and 1.7481 in the medium term.
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets