Our technical studies suggest the Pound-to-Australian Dollar exchange rate might finally be turning higher following a multi-week decline.
Sterling has been trending sideways against the Aussie Dollar since mid-August having arrested a protracted decline that had been in place since mid-May.
Viewed from a technical perspective, GBP/AUD had been in a strong multi-week downtrend until it reached the major trendline (A) situated at the 1.61-1.62 level where it stopped falling and entered a sideways ‘box’-shaped consolidation.
On Tuesday September 12, the rate broke out of the consolidation as a result of higher-than-expected UK inflation data, later it also broke above another trendline (B) in a bullish spike higher.
Both the move outside of the box and the break above the trendline are bullish signs which suggest the trend has reversed and is now going higher.
Although the pair is pulling-back in mid-week trade, this is normal after a strong surge as many traders close their buy trades to book their profits.
The current pull-back could also be a throwback move, which is a temporary move back after a break above a trendline before prices resume their uptrend – in any case, we expect further upside to eventually result.
A break above the 1.6601 highs would confirm a continuation up to the next target at just below the 200-day moving average, at 1.6660.
The 200-day would probably present an obstacle to further upside and as such we expect the exchange rate to consolidate at its level for a time before further directional moves.
The MACD momentum indicator has moved above the neckline signaling the likelihood of further upside for the pair.
From a fundamental perspective, the most significant factor for the pair in the short-term is how the Bank of England assesses the monetary climate at its rate meeting on Thursday, and whether it adopts a more hawkish stance as some commentators think.
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