Last week I mentioned how the EURAUD might be setting up for a significant drop. The potential head and shoulders pattern is far from confirmed, but it does present a highly favorable idea to keep an eye on as things unfold.
Not surprisingly, the GBPAUD is in the same boat. Since December of last year, the pound cross has carved what appears to be a 1,200 pip topping pattern.
It’s particularly appealing to me considering the pair is coming off a failed break of ascending channel resistance in March.
Here’s a view of the price action since the 2016 low:
On March 19th, the GBPAUD closed the day above channel resistance near the 1.8100 handle. After more than four weeks of trading above the level, buyers lost the battle on May 2nd, and the pair closed back inside the ascending channel.
The chart above is an excellent example of why I don’t buy upside breaks of ascending levels. They’re considered “weak” breakouts and end up false breaking more often than not.
Now, the 1.7940 level is the one to watch. It has directed price action since the December 2017 high and is also the 50% retracement when measuring from the current 2018 high in March to the June low.
You can see how this level has more recently served as resistance since the June 19 session. However, I’m not interested in shorting the pair just yet. The constant bullish pressure being applied to 1.7940 suggests a wait-and-see approach for now.
If the pair forms bearish price action from 1.7940, I will consider a short entry. Alternatively, I’ll be watching for an intraday spike up to 1.8080.
In order for sellers to confirm the head and shoulders pattern I mentioned above, they will need to secure a daily close below the neckline near 1.7480. Such a break would expose the objective at 1.6160, just don’t forget about ascending channel support as shown in the chart above.