AUD: A theme during the 7/23 session was the strength of the Aussie on the back of inflation data that shows a 3.0% annual CPI inflation rate during Q2. This is giving AUD-crosses bullish signals:
After breaking July’s trendline, AUD/USD looks poised to test the 2014-highs around 0.95. Maybe we will get some near-term correction around the common resistance area of 0.9440-0.9450. In a bullish market, we should expect buyers around 0.94 to confirm the bullish breakout seen in the 4H chart below:
We see similar set ups in other AUS-crosses. We can use the same anticipation of a pullback to confirm the breakout for bullish continuation, at least to challenge the 2014-highs:
GBP: Another key theme today came from the Bank of England meeting minutes for the July 9-10 meeting. The Monetary Policy Committee seem to be concerned with a lack of wage growth, even as the labor market has been improvement in 2014. It also believes growth will be slower in the second half. Essentially, there is no hurry to raise rates in 2014. The minutes could be assessed as relatively dovish because now, the rate hike seems to be scheduled for early 2015 instead of late 2014.
GBP/USD slid, forming a price top. There is support at 1.70, and a rising trendline from June that seems to reinforce the 1.70 handle. However, a break below 1.70 and June’s trendlien, accompanied by a test of the price top as resistance, should open up even greater bearish correction. A pullback should not push above 1.7125.
(click to enlarge)
If the current consolidation is anything like the past 2 in 2014, we should expect another couple weeks of consolidation/correction, with downside risk toward 1.6850. (The previous 2 consolidation periods lasted slightly more than a month, and ranged 320-360 pips. 1.6850 would be 340 pips from the 1.7190 high on the year:
Even the ailing Euro was able to pop up against the GBP today. But seeing a bearish trend that is intact in the 4H chart, we should expect sellers to fade the current bullish attempt, especially if price approaches the 0.7940 pivot, and the RSI pushes to 60 in the 4H chart.
The strong AUD and weak GBP sets up a strong slide in the GBP/AUD:
GBP vs. AUD:
While I feel that GBP is indeed going to need a couple more weeks of consolidation, I believe AUD strength might need to be curtailed. There is still a chance for fresh highs in the AUD-pairs, but expect choppiness because we can expect RBA gov. Glenn Stevens to start jawboning about the riskk of a strong AUD again.
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