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GBP/AUD rallied yesterday into the area of resistance we noted on a trade set-up posted last month, and from that zone a solid key-reversal bar was carved out yesterday. While the reversal-bar at a big inflection point, in of itself, is reason to sit up in one’s chair, there is still a bullish channel (some might think of it as a bear-flag), running on the 4-hr time-frame.

From this seat, the rejection of resistance starts this set-up, but the break of the near-term bullish price sequence is what will really set into motion a move lower. One way to approach this is to enter a partial position around current levels or higher and place a stop above yesterday’s high by say, 20-30 pips.

Upon a break of the lower trend-line of the channel another leg of the trade could be added to form a full-sized position. Taking this approach diminishes initial risk while maximizing on a higher probability set-up after seeing the rejection turn into a break of trend.

Initially, upon confirmation, the trend-lines from August and January will be targeted, in the vicinity of 17500/450, down to this month’s swing low at 17392.

***Updates will be provided on this idea and others in the trading/technical outlook webinars held on Wednesday and Friday.

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GBP/AUD Daily Chart (Key-reversal at resistance)

GBP/AUD daily chart with key reversal at resistance

GBP/AUD 4-hr Chart (Bullish sequence needs to be snapped)

GBP/AUD 4-hr chart, bullish channel needs to be broken to pick up momentum

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX