• n ev

It looks like the GBPAUD is setting up for a break higher

The price action in the GBPAUD has been a typical bull take the stairs, with breakouts to the upside not retracing to the lower bound too often, showing strong bullish momentum. The fundamentals for both countries would appear to be both improving except for the central business districts of Sydney and Melbourne both being forced to go into lockdown. Whereas the UK is prospering from the removal of restrictions.

Forex Analysis GBPAUD

The daily chart above shows how the British pound versus the Australian dollar has been in an uptrend from the May 2021 breakout. Since then, the price action has stair-stepped higher with great buying opportunities occurring at the lower Bollinger band and momentum breakouts from consolidation areas. For the last 3 trading weeks, the GBPAUD has been trading sideways, so in anticipation of the next breakout higher, I am looking for reasons to get long.

Using a comparison chart, it is obvious to see that from mid-July the GBP has been gaining relative strength to the AUD as the GBPUSD had been trading in lockstep with the AUDUSD but has been diverging for almost a month now.

When we look at the forex heatmap every day, the Australian dollar is also generally one of the weakest, if not the weakest, currencies relative to the others. Whereas the GBP has been often trading better than its peers.

Some clear differences in price action are compounded by the difference in current underlying themes economically, socially, and politically. The UK is coming out of its period of countrywide lockdowns, they have been successful in getting 75% of all adults fully vaccinated. The economy is on the up as the Office for National Statistics reported this morning that the UK economy grew by 4.8% between April and June, in line with the start of the lifting of restrictions. The economy is now within touching distance of being as large as it were pre-pandemic having reduced the gap to just 4.4%.

In contrast, the Australian military is preparing to deploy in cities like Sydney to ensure compliance with lockdown rules, as the Delta variant continues to worry the NSW government. Sydney has already endured 7 weeks of lockdown and yet coronavirus cases remain at near-record highs. The actual number is still a fraction of what the UK suffered but as the Delta variant is particularly transmissive the idea is to nip it in the bud as early as possible. The vaccination of Australian citizens is part of the problem as only around 24% of adults are fully vaccinated.

The RBA governor Lowe is in a situation where the Australian economy has bounced back quicker and stronger than the RBA expected. Pre-pandemic GDP levels were regained in the first quarter of 2021 and the labor market is showing that the unemployment rate is lower than pre-covid. If the coronavirus lockdowns persist this great economic recovery could be unwound but worryingly for the central bank, if more people are in employment and GDP is moving higher, inflation may get out of whack and rise faster than their expectations, due to wage growth, etc.

The RBA’s asset purchase program is likely to be withdrawn starting from September and then increasingly so in November. Likewise, market participants are assuming the Bank of England will become more Hawkish sooner rather than later.

The ActivTrades sentiment indicator is quite balanced with a marginal number of traders preferring the downside. As this number grows the stronger the moves higher should be. But for now, sentiment is not really helping guide my trade idea.

On an hourly chart, I like the idea of using defined support and resistance and waiting for the price action to break through the previous structure, come back down to retest before continuing higher. At least this way there is an opportunity to buy the dip at what was resistant and should be in the future support.

Once the higher time frames confirm that the price action is breaking higher, using a smaller time frame and some indicators may give new traders some confluence to trade with. Ideally, you want to see the H1 moving averages all showing bullish momentum, ie. The 20,50 and 200 are stacked on top of each other and pointing higher. Then on the m5 or whichever time frame you choose to use as a trigger, you should also see the moving averages pointing higher and stacked in a bullish manner. Whether you wait for a pullback and buy the dip using just the candlesticks, support, and resistance, or an oscillator like the Stochastic indicator, is up to you. If you choose the Oscillator, waiting for the indicator to show under the 20 level as oversold is the first part of the setup. From then on you need to make sure the proceeding price action is moving in your direction and use that as a trigger.