GBPAUD Countertrend Setup (Oct 06, 2016)

GBPAUD has been selling off but is currently finding support at the bottom of its descending channel on the 4-hour time frame. The 1.6700 handle seems to be keeping losses in check and if it continues to do so, price could bounce back to the top of the channel at 1.7400 or at least until the middle at 1.7100.


The 100 SMA is below the 200 SMA to indicate that the path of least resistance is to the downside. Also, the gap between the moving averages is widening, which means that bearish momentum is getting stronger. 


However, stochastic is on the move up to show that buyers are taking control of price action. In that case, price could make a quick pullback from its dive as sellers book profits. Any large pullback could encounter resistance around the dynamic inflection points at these moving averages.


Economic data from the UK has actually been stronger than expected, with the latest services PMI release showing a drop from 52.9 to 52.6 instead of 52.1. Manufacturing and construction PMI have posted stronger than expected gains, signaling that the economy could stay afloat even with the looming Brexit.


However, it seems as though the idea of leaving the single EU market is taking a huge toll on the pound since investors believe that this could severely dampen demand and business activity. Over the weekend, UK PM May confirmed that they would trigger Article 50 by the first quarter of next year, causing a sharp selloff for the currency since then.

Meanwhile, the RBA refrained from cutting rates in their statement this week, leading many to predict that they would sit on their hands for the rest of the year. Australian retail sales and trade balance have both come in better than expected, confirming that there’s no need for additional easing.


By Kate Curtis from Trader’s Way