GBPAUD tested a significant resistance area this past week.
On Monday I pointed out the 1,440 pip range here. Resistance is located at 1.8720 while support is near 1.7280.
When I wrote Monday’s post, GBPAUD was starting to come off resistance.
However, it took a second retest of the 1.8720 resistance area before sellers were ready to regain control.
If you missed out on today’s 200-pip drop, there’s no need to panic.
It’s only my opinion, but GBPAUD looks ready to test channel support near 1.8300 next week.
And that might be the beginning of a much larger move south.
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I favor channels for a few reasons. One of those reasons is that they are an excellent barometer of trend strength.
Let’s use the GBPAUD ascending channel below as an example.
Notice how the pair has tested both support and resistance on multiple occasions.
In late January, buyers carved a higher high and also managed to tag channel resistance at 1.8520.
That was a sign of strength.
Fast forward to this latest higher high in late February and March.
So far, buyers have not managed another retest of channel resistance. That’s partly because of the range ceiling at 1.8720 I mentioned earlier.
But it could also be an indication of weakness.
The key will be to watch how GBPAUD reacts at channel support next week and whether or not buyers can muster another leg higher.
If the pair challenges support next week before reaching back to the 1.8720 area, I would argue that a breakdown is imminent.
And if GBPAUD closes the day below channel support, it would expose the next key area at 1.7740 and perhaps even the range floor at 1.7280.
Alternatively, a daily close above 1.8720 would expose ascending channel resistance.