Almost two weeks ago I mentioned the bear flag that had formed on the GBPAUD 4-hour chart. Preceding the continuation pattern was the July 22nd bearish engulfing day.
Since that time the pair has traded mostly sideways, which hasn’t been too surprising given the pending Bank of England interest rate decision. However, today’s decision to cut rates has once again sparked the interest of sellers.
In addition to losing 300 pips immediately following the announcement, the pair has now closed below a key handle on a 4-hour basis. That level is 1.7360, which previously served as support between July 15th and August 1st and is also the July 7th high.
One of the basic tenets of technical analysis says that previous support becomes new resistance. With this in mind, traders can begin watching for selling opportunities on a retest of 1.7360.
Due to the higher levels of volatility we’ve seen lately, I’d like to see a daily close below 1.7360 before considering an entry. The extra patience will also allow prices to “reset” as the pair has become a bit overextended as a result of today’s rate cut.
Keep in mind that we have non-farm payroll tomorrow at 8:30 am EST. And although a currency cross such as GBPAUD is relatively insulated from US-based events, such news can still trigger an increase in volatility along with unfavorable spreads.
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