GBPAUD Forex Forecast – Ready to Test Trend Line?

160506_gbpaudGBPAUD has been trending lower on the 4-hour time frame, moving below a descending trend line connecting the latest highs of price action. Price looks ready for another test of this trend line soon and technical indicators are suggesting that the resistance could hold.
The 100 SMA lines up with the trend line and might serve as a dynamic resistance level also. In addition, this moving average is below the longer-term 200 SMA so the path of least resistance is to the downside. In that case, GBPAUD could fall back to its previous lows at 1.8350.
Stochastic is indicating overbought conditions so buying pressure might be exhausted soon. However, this oscillator hasn’t crossed down to indicate a return in selling pressure just yet. Similarly RSI is in the overbought area but hasn’t turned lower.
The RBA recently cut interest rates by 0.25% in response to a weaker inflation outlook. Their recently released monetary policy statement showed a downgrade to inflation forecasts, which suggests that there’s scope for further easing.
However, the reports released from the Australian economy yesterday showed stronger than expected results. Retail sales rose 0.4%, outpacing the forecast at 0.3%, while the trade deficit narrowed due to a pickup in exports.
Data from the UK has also been mostly weaker than expected. Manufacturing, construction, and services PMI all fell short of estimates and indicated a slowdown in activity. Still, the election in London has inspired anti-Brexit sentiments once more, keeping the currency afloat so far.

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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.