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GBP/AUD Tests 4 Month Support Trend Line

GBP/AUD Tests 4 Month Support Trend Line

2015-09-15 16:21:00
Jeremy Wagner, CEWA-M, Head of Education
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The GBP/AUD is testing support levels that have held for the past 4 months. If this level breaks, this may offer a trading opportunity by selling the GBPAUD pair.

Market Condition: Breakout

Bias: Short GBP-AUD

Entry: 2.1516

Stop Loss: Just above a recent swing high at the time of entry (currently near 2.1710)

Risk Management: Multi-lot to capture the potentially larger trend

GBP/AUD Tests 4 Month Support Trend Line

(Click on the chart to zoom in; after zooming in, press the play button towards the right to set the market in motion)

From a bigger picture perspective, there was a confluence of longer term wave relationships in the 2.20-2.22 price zone. This confluence consists of:

  • 61.8% retracement of the Oct 2008 high to the March 2013 low (2.2217)
  • Equal wave measurement where the September 2014 low to the August 2015 high equals the distance in pips from March 2013 low to the January 2014 high (2.2018)

As you can see above, these longer term wave relationships have been carving since 2008 and 2013. On August 24, 2015, prices did reach a high of 2.2371 then reversed aggressively. Therefore, that high we saw in August 2015 is significant due to the longer term price levels and aggressive reversal.

Suggested Video: The Equal Waves Pattern

We then turn our attention to support levels. If the support levels break, then that solidifies a meaningful top is in place.

Yesterday, prices tested a 4 month trend line in place since May 2015. Prices briefly pierced below, only to return to close above the line. Today offered a retest to the low and again bounced above the trend line.

Our trading plan is such that we will establish a breakout order to sell 1 pip below yesterday’s low and establish a stop loss just above a recent swing high. If prices were to turn lower immediately from current levels, a trader could use today’s high as the stop loss.

Implementing a multi-lot trade would make sense. A break below yesterday’s low of 2.1517 may offer a retest to 2.11. However, as we can see based on the longer term wave relationships, there could be the potential for a deeper sell off.

Why might the GBP be selling off? We wrote last week how the GBP/USD may be embarking upon an aggressive move lower. Should this move transpire, the losses in the GBP will likely outpace the AUD creating a downward trajectory for the GBP/AUD.

Suggested Reading: GBPUSD – The Tale of Two Elliott Wave Counts

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