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- GBP/AUD reverses higher after falling to base of channel
- New uptrend appears to be taking root
- Possible upside target of 1.84 in crosshairs
The Pound-to-Australian Dollar rate has risen strongly after comments from Australia’s chief central banker cast doubt on the outlook for the economy, weakening the Australian Dollar as markets increased bets that the Reserve Bank of Australia would cut interest rates at some point in coming months. The turn of events for the Australian Dollar could prove to be the trigger of a possible new uptrend for GBP/AUD.
The sudden rebound in the exchange rate coincides with the pair reaching a strong support zone at the level of the base of a channel and several key moving averages (MA) including the 50 and 200-day MAs.
These were expected to cushion the exchange rate and potentially lead to a bounce, as explained in our ‘week ahead’ article for the pair published at the weekend.
The pair has now rebounded out of this zone, situated in the 1.78-79 area and is trading in the 1.81s. Its rejection by the channel lows suggests a much more bullish outlook for the exchange rate in the short-to-medium term.
Not only has the pair bounced off key support, but it has now also risen above the 1.8160, February 4, peak highs, which is a key line in the sand for the exchange rate distinguishing the direction of the trend. Now it is surpassed, it has endowed the young uptrend with more validity.
The Feb 4 peak is the last ‘lower high’ before the exchange rate bottomed on February 5 and, therefore, has a special significance.
Momentum, as measured by the RSI indicator in the lower panel, is supporting the new uptrend, as it too is rising solidly and when it also shows strong gains it is normally a positive sign for the uptrend.
The rotation at the base of the channel could start a move all the way up to the channel highs at roughly 1.86 but a more conservative target would be 1.84 at the level of the late January support and resistance zone.
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