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GBPAUD is a pair that I mentioned in last weekend’s commentary. In it I pointed out the wedge pattern that has been developing since late last year.
Although we didn’t get a retest of wedge support to start the week, we could be looking at an explosive breakout to end the week. The pair faces Australian employment data within the next few hours (9:30pm EST), and depending on the severity of the outcome we could see GBPAUD break from this long-term wedge pattern.
Which way will it break?
That’s anyone’s guess. And as price action traders it is never our job to guess which way the market will break. Instead we use well-defined levels to time our entries by letting the market tell us which way it wants to move. In other words, we always let the market make the first move.
Here is a big picture look at the GBPAUD wedge along with key levels of interest.
The daily chart above shows the wedge pattern along with several areas of interest. Of particular note is the trend line from 2013 which lines up with the 1.8375 horizontal level in an area of potential support for the pair.
To the upside we have the 2.00 area which is defined by the 2015 high. In fact this is a six-year high which will surely attract sellers should the market rally on the back of the Australian employment data.
From here I want to see a 4 hour close below or above wedge support or resistance respectively. More conservative traders can of course wait for a daily close beyond one of these levels.
At the time of this writing, the market is quite far from either level so I do expect it to take some time for GBPAUD to build the momentum necessary to breakout. That said, an extremely good or bad employment change could get the job done on the next 4 hour close following the news at 1am EST.
Summary: Wait for a 4 hour close below or above wedge support or resistance respectively and then watch for a retest of the broken level (see chart below). More conservative traders can wait for a daily close beyond support or resistance. Key levels to the downside come in at 1.8688 and 1.8375. To the upside we the six-year high at 2.00 to act as resistance.