GBP/AUD Double Bottom (May 21, 2014)

GBP/AUD’s downtrend might soon reverse, as the pair has formed a double bottom pattern on its 4-hour time frame. The pair has bounced off the 1.7850 minor psychological level a couple of times then found resistance at the pattern’s neckline around 1.8250.

An upside break from the neckline could lead to roughly 400 pips in gains, which is the same height as the chart pattern. This could take the pair up to the 1.8650 levels. On the other hand, if the neckline continues to hold as resistance, GBP/AUD might move back to the bottom of the range and form another low at 1.7850.

Stochastic is already in the overbought zone, hinting that buying pressure might wind down. A quick pullback might take place before buyers push the pair higher. Going long above the 1.8250 mark and setting a stop below 1.8150 could yield a 4:1 return on risk with a 400-pip target.

By Kate Curtis from Trader’s Way