GBP/AUD could be poised for further upside as price erased a slow first couple of weeks to start the year and now continues to make fresh 5 year highs. Last week’s high of 1.9678 was made on Tuesday and is still tentatively holding up. If price does retreat, we may only see a slight consolidation towards the 1.9300 – 1.9450 region.
The daily chart above shows that the 161.8% Fibonacci expansion level has provided key pullbacks within the overall bullish trend that extends back to March 2013. If price does make a fresh multi-year high, we could see a potential short-term bearish ABCD pattern form around the 1.9903 level. If that level does not provide a 200 pip reversal, the bullish trend could accelerate all the way to the 2.0402 level.
This week multiple key pieces of data and central bank talk will be released for both the Australian and United Kingdom economies. Even if we some positive beats regarding Australian employment or business confidence, the growing expectations for the RBA to remain dovish is likely to remain intact. The key releases for this trade may be UK Manufacturing production and the Bank of England Inflation report. Market expectations are for manufacturing to grow only 0.3% and for the Inflation Report to possibly show that the BOE will be on hold until next year.
The trade: Buy GBP/AUD at 1.9710 with a stop loss at 1.9660 and a take profit at 1.9890. The Risk/Reward Ratio is just under 1:4
Edward J. Moya
WorldWideMarkets Online Trading