Technical Sentiment: Bearish
Key Takeaways
- GBP/AUD finds a temporary bottom at 1.7735;
- The Daily downtrend risks invalidation if a higher swing high is made;
- Downtrend will continue on a break below 1.7735.
The British Pound appears to have reached an equilibrium against the Australian Dollar in the last few days. On the fundamental side, both currencies have been backed by stable news releases this week, therefore the lack of volatility is not a major surprise right now. RBA Monetary Policy left the cash rate unchanged at 2.5% and implied there would be no change this year; while UK Inflation fell in March to it’s lowest in four years.
Daily Downtrend and Oversold Conditions
GBP/AUD downtrend hit 100% Fibonacci Extension for the 1000 pips plus bearish swing between January and February, with the extension starting from the 1.8822 lower high. A logical target towards the downside should be the 200-Day Moving Average, currently priced at 1.7641. Stochastics is in oversold territory, and has been for over a month now, yet there were little to no corrections towards the upside during this time.
Short Term Bottom At 1.7735
With multiple rejections and a 4-hour Bullish Engulfing Bar on the last test, the 1.7735 support confluence represents the key level for the upcoming trading sessions. Further consolidation between 1.7735-1.7830, while underlining the temporary equilibrium, is more likely to lead to a bearish break and a continuation of the major downtrend, towards the 200-Day Moving Average.
GBP/AUD has a long way to go before invalidating the downtrend completely. The first hurdle towards the upside is a combination between the 50 and 100 Simple Moving Averages on the 4H timeframe. Intermediary pivot zones at 1.7950 and 1.8020 should be cleared in order to create higher swing highs. In that case the pair would eventually target 1.8120.
*********
Prepared by Alexandru Z., Chief Currency Strategist at Capital Trust Markets
