Technical Sentiment: Bearish

Key Takeaways

• GBP/AUD opened the trading week with a large bullish gap;
• Australian Dollar is suffering as traders are selling the pair across the board following worse-than-expected fall in Building Approvals for the month of September, coupled with a ballooning drop of -16.9% in Commodity Prices;
• Australian Retail Sales, Trade Balance, RBA Cash Rate and Rate Statement all due Monday night, with an overall bearish bias for the domestic currency;
• Sterling Pound saw sustained buying momentum triggered by an unexpected recovery in Manufacturing PMI;

GBP/AUD is trading 170 pips higher than its Friday Close, putting a 5-week bearish channel at risk, with no immediate signs that buyers will step down from this rally.

Technical Analysis

In less than two days with above average bullish momentum, GBP/AUD has successfully retraced nearly all losses sustained throughout the previous two weeks of trading. After trending lower for at a steady, albeit choppy pace, this pair went through a couple of bamboozling swings between 29^th and 31^st October. Plenty of offers located at 1.8100 lifted price higher on Wednesday, only to retrace lower immediately in order to fake a bearish breakout.

Today’s gap, followed by a sustained intraday rally, broke above an intermediary resistance trend and the most recent Lower High set at 1.8258, changing GBP/AUD bias to bullish. Spot is currently trading around 1.8350 during 3th/11 U.S. session, just above the 200 Simple Moving Average on 4H chart. A successful break above 1.8400 will lead to an invalidation of a 5-week bearish channel, which should pave the way for more gains towards 1.8525, possibly as high as 1.8682 (1^st October top).

On the other hand, if bears manage to assume control in this area, which could happen only if certain AUD fundamental triggers appear, price will re-test 1.8240/50 within the next few trading sessions.

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Prepared by Alex, Currency Strategist at Capital Trust Markets