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GBP/AUD is being squeezed into a pincer point on the daily charts, suggesting it's readying for a breakout.
The pair consolidates at 1.8820 on Tuesday which puts it in the middle of the range it has occupied over the course of the past week.
A closer inspection of the chart reveals that the daily ranges are contracting, and like a coiling spring, some energy will need to be released sooner rather than later.
If the breakout is higher, then the pound to Australian dollar exchange rate could rally to 1.89 in short order before graduating to 1.8950, the April 29 high.
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For this to happen, we'd imagine there needs to be a notable deterioration in global sentiment that would provide the trigger, which would most likely arrive in the form of a further escalation in Middle East tensions.
AUD strength in 2026 has tended to be disrupted by negative headlines concerning Iran. However, here the headlines are clearly in favour of the U.S. and Iran reaching a treaty, which limits such AUD-negative scenarios.
A downside breakout of the wedge pattern is the preferred expectation as the trend heading into the consolidation was lower. In fact, GBP/AUD's downtrend is still deeply entrenched, and the exchange rate's recent strength is likely a mean reversion within that trend.
For sure, there's been little fundamental shift of late that would suggest the tide has turned in favour of GBP/AUD upside.
Given this, a test of the 1.85 lows is possible later in June/July.
