Trading opportunities on currency pair: the GBP/AUD rate is near the trend line. For the past four days the pound has been falling due to the Bank of England downing their GDP and inflation forecasts. Taking into account that a mixed bag of Chinese data came out on Sunday, it’d be better to consider buying pounds on the trend. A rebound will see a W-shape pattern form. The target for it would be 2.2375. Growth will cancel out with any break in the trend line and in which case a second scenario will get underway. Sales should be considered after the price has returned to the trend.
The last idea I did on GBP/AUD was on 3rd August. In it I considered a strengthening of the pound along the trend to 2.1967 by 15th August due to expectations that the Bank of England will put up its base rate and the price of iron ore will stay low.
Although the price level was reached, I considered the scenario cancelled out when the trend line was broken. After the break, the GBP/AUD fell to the 23.6% fibo level. From here the price rebounded and on “Black Monday” (24th August) the quotes reached 2.2375.
On this day the Shanghai SE Composite Index fell 8.49%, the Hang Seng was down 5.17% and US indices were down 3.5%. Due to the fall of the indices there was a growth in demand for protected assets (euro and yen) and a decline in demand for commodities currencies. As a commodity currency, the AUD lost 200 points against the USD. The euro/dollar shot up 300 points to 1.1712, the dollar/yen fell by almost 600 points to 116.13. The VIX (fear index), which indicates market volatility, reached 46.34 before closing at 40.74.
Over the course of the next five trading days, the GBP/AUD switched into a correctional phase and corrected by 977 points to 2.1398. The pair is currently stuck in a sideways trend. I’ve corrected the trend line along the 2.0873 minimum.
So what’s new since 3rd August? The Bank of England convened. Iron ore prices have gone up. The Chinese stock market situation still hasn’t calmed down.
The Bank of England left rates unchanged at 0.5% and kept bond purchases at 375 billion pounds. According to the meeting’s minutes, only one vote was cast for rates to go up with the remaining eight against. The MPC votes cast fit the forecast.
Firstly the pound reacted with a growth to this news, but then fell. The Bank of England reassessed down its inflation forecast for the next 12 months and dropped its Q3 GDP forecast from 0.7% to 0.6%.
Nevertheless, we can see an interesting technical picture on the GBP/AUD. The price is by the trend line. Many are worried by one thing: is it a rebound or a break?
The situation for the Aussie is ambiguous. For the moment it is growing on the back of expectations that the regulator is not going to drop its base rate this year; instead mounting the stimulative economic pressure in the next. On the other hand, a mixed bag of stats came out of China yesterday. August industrial production was down, whereas retail sales were up. For the moment I’d say that it’s better to buy pound along the trend. Any rebound will see a W-shaped pattern forming with a 2.2375 target.
The pound has been trading in a sideways trend for fourteen days straight. It has been strengthening against the Aussie since May this year (4 months). Due to the fact that the AO indicator is overloaded, I made a second scenario just in case the trend line is broken. The indicator needs to unload to the zero line. If a break happens, we’re looking at a fall of the pound to 2.0912 due to a technical correction.
Why not take advantage of the improved version of the Trader’s Calculator.