GBP/AUD – Channel Formation Signals Bearish Pressure

4 min read
HubertM

HubertM

Author

Dear Trader,

the AUD has been a phoenix arising from its ashes in the final trading hours of 2017.

The GBP/AUD dropped 700 pips over the course of just a couple of weeks.

This analysis will take a closer look at the price-action of this pair and highlight potential setups.

Bearish Bounce Confirms Channel Formation

The weekly chart below shows that a correction has been in occurring since late 2016. The longer-term outlook remains quite unclear due to the extended nature of the correction but the bearish bounce that took place over the last few weeks has now confirmed that price is contained within a large channel (blue).

 

The Daily Chart (below) seems to confirm that one whole macro corrective wave structure has completed at the last high (i.e pink WXY). Whether this is now the beginning of a bearish trend continuation or just more correction cannot be known at this time. But in both cases, the GBP/AUD is proabably heading towards to the bottom of the channel.

What to Expect Next?

The bearish move of the last weeks is in the process of creating divergence on the 4-hour (see below) and 1 hour charts. Price is also close to approaching the center-line of the channel / 50% Fibonacci retracement level. Furthermore there is a fairly decent support zone between 1.7130 – 1.7050 that has acted as, both, support and resistance in the past. Together this forms a POC zone that could become a bullish bouncing spot. Thus I would not recommend entering new short positions at this time.

A bullish bounce could test price levels around the 144 EMA of the 4hour chart and previous resistance zones. So a move back up to 1.7550 to 1.7650 is possible.

It is also important to bear in mind that the AUD rally of the last week has taken place without any fundamental drivers whatsoever, and also at a time of very low trading volumes. These facts make the rally potentially more vulnerable to unexpectedly sharp corrections, especially with potential end-of-year profit taking just around the corner.

Aggressive traders could consider trading a bullish bounce up to the 144 EMA if enough confirmation signals form at the POC zone, such as confirmed divergence and slow down of momentum. The main target would the 4hour chart 144 EMA itself.

If a bullish bounce occurs as anticipated, then there will be opportunities for new short positions if price can re-establish itself bearishly against the 21 and 144 EMAs. Targets for the bearish bounce scenario could be the channel centre line again, and beyond that, down towards 1.67 and 1.65 until price reaches the bottom of the channel.

 

All the best along your trading journey…
Hubert
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