GBPAUD is coming off a long-term rally and started a correction towards forex support after testing the 2.0000 major psychological resistance. Price is now pulling back to the 1.9300 level, which is close to a former resistance area.
Stochastic is still moving down though, indicating that sellers are still in control of price action. Once the indicator turns from the oversold zone and starts moving higher, pound bulls might jump in once more and push prices back up. This could lead to a rally back to the previous highs near 2.0000 or perhaps the creation of new ones.
Forex Support Levels
The 1.9000 major psychological support level lines up with the 50% Fibonacci retracement on the latest swing low and high on the daily chart. This is also close to the moving averages, which might hold as dynamic inflection points and add to the strength of the support area.
For now, the shorter-term moving average is treading above the longer-term moving average, confirming that the uptrend is likely to stay intact. However, a break below the longer-term moving average and the 1.9000 major psychological level could be an early signal that a reversal is underway.
Event risks for this forex support setup include the BOE minutes and the UK jobs report this week. Another stronger than expected UK jobs report could renew pound gains and remind traders that the central bank isn’t looking to ease monetary policy anytime soon. However, a change in the BOE rhetoric to a more cautious one might lead traders to doubt their previous upbeat assessment of the economy.
Recall that Governor Carney has emphasized that the downturn in inflation would translate to stronger spending and growth, but that recent economic reports from the UK have failed to impress. If policymakers show more signs of concern, the central bank might have to keep interest rates on hold for much longer and lead to a break of forex support.
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