GBP/AUD Rate has Potential to Recover Furher Over Next Five Days
The Pound to Australian Dollar exchange rate (GBP/AUD) has bounced over the last week and our studies suggest the move may continue in the week to come.
The pair moved back above the 1.6800 level after finding support from the 200-day moving average and the midpoint of the previous rally, and this may pave the way for greater gains.
Market technical analysis from trading signal website Tradertip is very bullish for GBP/AUD saying the exchange rate will probably rise to above 1.69 now and even 1.70.
“Market should hold major support at 1.6618 before rising towards 1.6912 or even the 1.7016 limit,” say Tradertip in a note that corroborates our suspicions.
But we remain more cautious and would ideally wish to see a break above the previous peak highs at 1.6843 before turning more bullish, with a target then at 1.6950.
Still in a Downtrend?
Despite the recovery last week, technical studies still suggest the pair is technically, probably, in a short-term downtrend which is likely to persist.
As such, a rebreak below the 1.6613 lows would confirm for us a continuation down to a target at 1.6500 initially, followed by 1.6400, as was in our previous forecast.
The falling MACD continues to corroborate the dominant downtrend.
The pair was sliding lower until it met support from the 200-day moving average at 1.6650 and the 50% Fibonacci (Fib) level of the previous downtrend in the 1.67s.
Both these levels are common points of reversal on charts - whether or not this has happened on GBP/AUD we think it is too early to say, but there is a chance.
In the meantime, the short-term downtrend is still technically dominant, and a break below the 1.6613 level would decisively signal a continuation lower.
Technical studies are based on price action and the structure of the market and cannot account for any moves stemming from major, unforseen events.
Nevertheless, they are excellent in cutting out the day-to-day noise in the exchange rate market and setting objective targets.
Data and Events to Watch for the Australian Dollar
Tuesday sees commentary from Reserve Bank of Australia (RBA) assistant governor Debelle at 9.30 BST, with markets interested in finding out whether the RBA’s stance is still neutral – or even slightly hawkish perhaps as some analysts expect.
New Home Sales are out at 2.00 on Thursday, June 29.
Private Sector Credit is out at 2.30 on Friday, June 30 and is expected to show a rise of 0.4%.
Credit is a major issue for Australian policymakers who are afraid the level of the private debt in the country is reaching unsustainable levels and they will be closely following the release.
The price of iron ore prices is another factor which could impact on the Aussie if it continues falling.
Politics Central for Pound this Week
On the agenda for Sterling this week:
- Ongoing debate around of Brexit negotiations
- The Government’s alliance with the DUP to allow it to govern
- The debate on the Queen’s Speech, with a vote expected on Thursday
- The government is also expected to present details of proposals on rights for EU citizens after Brexit on Monday.
One of the main events for Sterling in the week ahead is the voting of parliament on the Queen’s speech, which is to be held on Thursday 29.
The event should pass by without little hitch though owing to the successful signing of a pact between the DUP and Conservative parties.
In exchange for a number of key policy pledges and spending, the DUP will support the Government's agenda in Parliament.
This will allow May to Govern effectively and removes a key piece of uncertainty in the UK political sphere. .
The only other events of any note is Bank of England Governor Mark Carney's appearances on Tuesday at 11.00 BST and Wednesday 14.30 at the ECB's central banker's forum.
Markets will be looking for any hints that he supports raising interest rates in the UK, as does the Bank's Chief Economist Andy Haldane.
The Pound dropped last week when Carney said he would not support a rate rise only to rally the following day when Haldane said he would support such a move.
If those looking to raise rates win the argument, we would see another pillar underneath Sterling fall in place.
