The GBP/AUD Rally Ends Where We Thought it Would
A strong recovery by pound sterling at the start of 2016 appears to have run out of steam - at the exact point we predicted. We now see a potential run below 2.0 as being on the cards.
The Australian dollar slid sharply at the start of the year, hitting new seven-year lows against the US dollar while allowing the pound the chance to retake lost ground.
The Aussie is allergic to risky market conditions; the kind that have arisen amid Chinese concerns and renewed falls in commodity prices.
However, with risk fears now starting to fade, the AUD looks poised to move in the opposite direction.
As a result the GBP/AUD has been rejected at the top of a descending channel after the release of data showing Australian inflation is rising at a faster-than-expected rate.
Risk sentiment has improved markedly too with further talk of impending Chinese measures aimed at stimulating growth in Australia's largest export market.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.009▼ -0.35%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9407 - 1.9488 |
**Independent Specialist | 1.9809 - 1.9889 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
British Pound Hits the Wall
The GBPAUD's daily chart shows the exchange rate attempting to breakout from a down-sloping channel.
Recent price action has confirmed that this slope is proving a strong barrier and the price should now continue lower.
In order to break higher, the exchange rate would ideally have to show a clear break above the 200-day MA at 2.1033, with confirmation coming from a move over the 2.1100 handle, and a probable move up to an initial target at 2.1200 where the R2 Monthly Pivot is situated.
Other indicators are also supporting further upside – including MACD - which has crossed the zero line after converging bullishly on the last swing low, suggesting further upside, and lending credence to the potential for a channel breakout.
A break down back into the channel wouldn’t come as a surprise either, however, given the substantial resistance above.
Such a move would probably be confirmed by a break below 2.0450, which would probably signal a move down to the lows of the channel at 2.0200.
Australian Dollar Bounces
The Aussie bounced from its weakest levels against the US dollar in nearly seven years as the latest growth data from China helped allay hard landing fears in China.
Official data showed China’s economy lost a tick of momentum, growing at a 6.8% quarterly pace in October to December, the lowest in six years, from 6.9% in the third quarter.
Despite the modest slowing in China’s economy, broader worries remain about the breadth of its decline, suggesting today’s risk rally may not have legs.
