GBP/AUD Gets Choppy As Exhaustion Creeps In

Technical Sentiment: Neutral

Key Takeaways

• Australian Retail Sales dropped to 0.1% while Commodity Prices fell 16.8% y/y, lifting GBP/AUD up to 1.8678 in Asian trading;
• The pair suffered a sharp reversal as U.K. Manufacturing PMI hit a 17-month low (51.6 vs. consensus 52.6);
• A double top is signaling a possible correction, currently lacking confirmation.

In recent week Aussie has been on a major downswing against all major currencies; however the Sterling Pound may soon be dragged down as economic data is predominantly weak.

 

Technical Analysis

Price action has been predominantly choppy all week. Coupled with smaller daily ranges and an obvious unwillingness from buyers to price in a Higher High within the uptrend, going forward traders should pay close attention for additional signs that could confirm a correction from current levels.

GBP/AUD formed a Double Top reversal pattern at 1.8675, although multiple swing lows have also bounced off 1.8500, indicating a consolidation phase. A break below 1.8500 will invalidate the bullish swing structure of Higher Lows, triggering a correction to lower support levels. An initial target can be identified at 1.8367, quickly followed by a stronger support confluence at 1.8185, where a pivot zone is strengthened by 200-Day Simple Moving Average.

Australian Building Approvals and Trade Balance will be released Wednesday night. Traders will then focus on U.K. PMIs on Thursday (Construction PMI) and Friday (Services PMI), with declines expected from both releases that should ultimately drag the Sterling Pound lower.

If GBP/AUD does find the strength to rally above 1.8675, overbought conditions will likely keep rallies somewhat smaller than what we have observed throughout September. 1.8822, 3^rd March high, marks a possible target for buyers.

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Prepared by Alex Z., Chief Currency Strategist at Capital Trust Markets