Pound vs. Australian Dollar: Studies Sugest GBP/AUD Could be About to Turn Lower

Pound Sterling might be about to turn lower against the Australian Dollar according to a technical strategist who identifies 1.63 as an initial target. 

The Pound's rebound against a host of major currencies on Friday, October 15 on the back of reports the EU and UK are likely to make a breakthrough before the end of 2017. However, the recovery in Sterling did not extend to the Australian Dollar. 

Indeed, regarding the Pound-to-Australian Dollar exchange rate, the outlook appears to be rather negative.

Richard Perry, a technical analyst with Hantec Markets in London has studied the GBP/AUD charts and finds the setup so compelling he has labelled it his "chart of the day."

"It is still worth pointing out the move that is developing on Sterling/Aussie," says Perry, "another test of the key near-term support at 1.6775 shows how the market is forming a four-week reversal pattern, which currently looks to be a well-defined head & shoulders top."

Head-and-shoulders tops are composed of three peaks, with the central one the highest (the 'head'), and the two either side slightly lower but of a similar height (the 'shoulders').

They occur at the end of uptrends and are very bearish signifiers.

A break below the level of the two intervening troughs of the pattern at what is called the 'neckline' is confirmation of an extremely bearish phase, with a subsequent sell-off equivalent to the height of the pattern from peak to the neckline, extrapolated lower.

Momentum is corroborating the head-and-shoulders according to Hantec and indicating a bearish turn may be close at hand:

"The momentum indicators are already tracking lower with the RSI showing a series of lower highs over the past few weeks, the MACD lines in decline and the Stochastics also turning back lower again," says Perry.

Meanwhile our studies of the intraday, hourly chart, suggest a move back below the 1.6890 level would open the way down to another test of the neckline at 1.6775 and possible breakdown.

The eventual target for the pattern would be roughly in the 1.6360 regions according to our own estimates. 

We also note tough overhead resistance from a major multi-month trendline as potentially supporting the prospect of a bearish decline.

Nevertheless, it is also noteworthy that all the major moving averages - the 50, 100 and 200 - lie just underneath the H&S pattern, and this cluster of MA's is a formidable obstacle to further downside, making us more cautious than Perry about a landslide lower.

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