Forex Signal Reversal on GBP/AUD – May 21, 2014

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Forex Signal Reversal on GBP/AUD - May 21, 2014

Forex Signal Reversal on GBP/AUD - May 21, 2014

GBP/AUD’s downtrend might soon reverse, as the pair has formed a double bottom pattern on its 4-hour time frame and made a buy forex signal. The pair has bounced off the 1.7850 minor psychological level a couple of times then found resistance at the pattern’s neckline around 1.8250.

An upside break from the neckline could lead to roughly 400 pips in gains, which is the same height as the chart pattern. This could take the pair up to the 1.8650 levels. On the other hand, if the neckline continues to hold as resistance, GBP/AUD might move back to the bottom of the range and form another low at 1.7850 for another buy forex signal.

Stochastic is already in the overbought zone, hinting that buying pressure might wind down. A quick pullback might take place before buyers push the pair higher. Going long above the 1.8250 mark and setting a stop below 1.8150 could yield a 4:1 return on risk with a 400-pip target.

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Forex Signal on GBP/AUD

The latest UK CPI came in stronger than expected, as the headline figure showed a 1.8% increase in price levels while the core version of the report indicated a 2.0% gain. This puts the spotlight back on the BOE, which might be considering hiking interest rates during the first half of 2015.

The BOE is set to release the minutes of their latest monetary policy meeting, during which they decided to keep monetary policy unchanged for the meantime. As for the Australian dollar, the recently released RBA meeting minutes showed a hint of caution, with Deputy Governor Debelle noting that inflation and export activity are likely to slow down.

The prospect of Australian government budget cuts and a warning from the S&P also put the Australian dollar at risk of further losses. Earlier today, Australia’s Westpac consumer sentiment data showed a 6.8% drop, indicating pessimism.

To contact the reporter of the story: Marco Roemer at marco@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.