GBPAUD has been trading in an uptrend for quite some time but it looks like a reversal signal is showing up on the long-term charts. A head and shoulders pattern can be seen, with price gearing up for a breakdown of the neckline and the rising trend line support.
A downside break could push the pair down by at least a thousand pips, which is roughly the same height as the chart formation. A candle closing below the 2.0800 handle might be enough to confirm that a breakdown has occurred and that GBPAUD is in for longer-term declines.
The 100 SMA is above the 200 SMA for now so the uptrend might still be able to carry on at some point. However, a downward crossover for these moving averages could allow more bears to get in the game. Stochastic is on the move down but is nearing the oversold zone to indicate that the selloff is exhausted while RSI has more room to move lower.
GBPAUD Fundamental Factors
Data from the UK has been mostly weaker than expected, with last week’s CPI release indicating another 0.1% decline in price levels and the retail sales report printing a sharper than expected 0.6% drop in consumer spending. This follows the BOE’s shift to a less hawkish stance earlier in the month, predicting that they’re likely to hike rates much later than initially anticipated.
Meanwhile, the RBA shifted to a less dovish stance the other week as well, supported by stronger growth and employment numbers. The short AUD trade has also been unwinding for the past few days, signaling that the Australian currency could continue to advance.
Up ahead, quarterly private capital expenditure data is up for release from the Australian economy, and analysts are expecting to see a smaller 2.8% decline compared to the previous 4.0% slump. This week’s BOE inflation report hearings turned out bearish for the pound, with Governor Carney confirming that rates will remain low for quite some time.
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