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GBPAUD Bulls Face Difficult Task Next Week

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With the Australian dollar outpacing its New Zealand counterpart since mid-February, GBPAUD has been playing catch up to GBPNZD. While both crosses have suffered considerable losses since September of last year, GBPAUD has had to bear the brunt of it over the last two months.

But the tide may be turning. What used to be a short-term GBPNZD rally followed by a weak if not muted bullish move by GBPAUD is becoming the opposite. In fact, the latter has climbed more than 900 pips in the last two weeks alone.

This recent change poses an important question – is this the start of the next leg higher following the massive 8,000-pip rally that began in 2013 or is it a mere blip on the radar?

To attempt to answer, we turn to a pattern that previously directed price action between August of 2015 and February 22nd of this year. The structure I’m referring to is the well-worn descending channel as shown in the chart below.

GBPAUD channel pattern on the daily chart

With the pair fast approaching former support, next week becomes a critical test for buyers. But the answer to whether we should be buying or selling will have to wait. We simply don’t have enough information to make a sound decision one way or the other.

With that said, a close back above former channel support could potentially make things more interesting. The gap from February 19th remains open, and as I’ve stated in the past, open gaps tend to act as magnets and eventually get closed.

The February 19th closing price also lines up with channel resistance, a target that is a healthy 900 pips away from current prices. But for us to even have a chance at such a move, buyers need to muster a close above the 1.9220 handle next week, a tall order for sure.

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Open gap on the GBPAUD daily time frame

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1 comment
Carol Capner says

Hi Jason.
My view is this pair will make a deep retracement very soon; this week in fact, although this week is going to be a slow one.

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