- AUD faces further losses ahead
- NAB analyst sees GBP and EUR favoured in medium-term
- Both GBP/AUD and EUR/AUD markets said to be trending
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The Australian Dollar is threatening to enter a fresh technical medium-term downtrend against the British Pound, according to technical analysis conducted by NAB.
A six week rally in the Pound-to-Australian Dollar exchange rate has broken through the previous correction high at 1.8412 and in doing so breaks the medium-term downtrend that was in place for much of mid-2020 according to David Coloretti, a Technical Analyst for NAB.
Coloretti says a weekly close may provide further confirmation of a medium-term uptrend in GBP/AUD is establishing.
The dramatic dip to new two-year lows in September was reversed in the subsequent two weeks.
Above: The weekly GBP/AUD chart with the 50-week moving average shown in blue.
Notably, the two-year low "was plagued" by material bearish medium-term momentum failures that combined with the price reversal to confirm a likely medium-term bottom and pending medium-term price reversal says Coloretti.
"Weekly Bollinger bands have ceased converging and are now diverging. This is typical of a market that has moved from a range environment to a trending environment," says Coloretti.
A weekly close above the higher weekly Bollinger band at 1.855 will confirm that an evolving medium-term uptrend is in play says the analyst.
Coloretti awaits bullish confirmation from the weekly close. Further bullish medium-term confirmation will be seen upon a weekly close above the 50 week moving average at 1.8779.
Coloretti holds a medium-term bullish bias on the GBP/AUD exchange rate.
Foreign exchange strategists at Australian lender Westpac this week told clients that they can expect further losses by the Aussie against Sterling in the near-term but ultimately an improvement in market sentiment towards year-end could limit the losses.
The Pound-to-Australian Dollar exchange rate rose 0.60% on Wednesday to reach 1.8486, a new four-month high.
Gains came amidst a broad-based rally in Sterling on news the EU and UK had agreed to intensify post-Brexit trade negotiations after the UK last week stepped back from talks accusing the EU of not negotiating in good faith.
Westpac analyst Sean Callow says the AUD/GBP exchange rate is likely to probe the 0.5350/60 area "as the Aussie underperforms the G10 on US election uncertainty and the RBA’s increasingly dovish stance, setting up fresh monetary easing on 3 November".
AUD/GBP going lower to 0.5350/60 equates with a rise in the Pound-to-Australian Dollar exchange rate (GBP/AUD) to 1.8656/1.8691.
The Euro-to-Australian Dollar exchange rate is meanwhile looking bullish on a multi-week timeframe owing to the broad-based weakness being experienced by the Australian Dollar, according to NAB technicals.
Coloretti notes multiple attempts to break below 1.6130 since June 2020 have all but failed.
Throughout that period a range ceiling around 1.6597 prevailed. The ceiling has now given way and has swung EUR/AUD into an upward bias according to Coloretti.
Above: Weekly EUR/AUD chart with the 50-week moving average shown in blue.
In fact, it is observed that EUR/AUD has been in an uptrend structure since 2017 amid a series of higher lows in that time.
Despite the material downswing in the second quarter of 2020, that series of higher lows remains in play according to Coloretti and higher highs since August 2020 confirm a medium-term uptrend.
The 50 week moving average at 1.6556 has provided resistance in the second half of 2020 and is now broken. A weekly close above 1.6556 is a bullish medium-term uptrend confirmation says the analyst.
"Weekly Bollinger bands have ceased converging and are now diverging. This is typical of a market that has moved from a range environment to a trending environment," says Coloretti who says a weekly close above the higher weekly Bollinger band at 1.6666 will provide further confirmation of the evolving medium-term uptrend.
(Research courtesy of FXwatcher.com).
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