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Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
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Similar to the EURAUD that I discussed last week and again over the weekend, the GBPAUD has carved what could be a 1,200 pip reversal pattern.
However, there is a significant difference between the two pairs. While the Euro cross remains 300 pips above neckline support, its pound counterpart is challenging the neckline as I type this.
The fact that the GBPAUD is the weaker of the two isn’t all that surprising though. Look no further than the EURCAD and GBPCAD crosses. The latter has already confirmed its head and shoulders pattern while the former has yet to do so.
As for the GBPAUD, this head and shoulders that began forming last November has an approximate height of 1,200 pips. The neckline extends from the year to date low in January and connects with the swing low that materialized between June 4th and 5th.
That puts the measured objective somewhere in the 1.6300 region. That isn’t too far away from the August 2017 swing low at 1.6170. There is also a trend line support that connects the 2016 and 2017 lows, but that level won’t come into play until at least 1.6900.
So as you can see, if the GBPAUD confirms this head and shoulders pattern, shorts will have plenty of room to run.
That said, it’s going to take a daily close (New York 5 pm EST) below neckline support at 1.7520 to get the job done. Until that occurs, the pair is prone to consolidation following last week’s selloff.
Key support below the neckline comes in at the June low of 1.7390. A close below that would expose the year to date low at 1.7100 which is also very near the 50% retracement of the 2016 to 2018 range that spans 2,800 pips.
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