The GBP/AUD pair has been on the radar of trend traders for years. Establishing its latest low at 1.4792 on July 8th, the pair has moved over 700 pips lower since we last reported with the Chart of the Day on April 14th. . Today’s price action shows us testing the top of a broadening pattern allowing us to find new entry signals to join the trend.
Fundamentally, the Aussie Dollar remains attractive due to its high yield. Despite taking a pause in rate hikes the RBA has set their central banking rate at an attractive yield of 4.5%. As money moves to find the highest rate of return, we can reasonably assume money will flow out of the low yielding Sterling and into the Aussie.
Price Action
Moving to an 8H chart, we can see price trading in a rarely seen broadening pattern. This pattern occurs when both higher highs and lower lows are being created. These patterns can prove difficult to trade as support and resistance continually widens without any positive sign of a true breakout occurring. Using an oscillator such as CCI can help us filter turns and allow us to trade the pattern in a trending direction.
Trading Opportunity
My preference is to sell the GBP/AUD with the overall trend using a CCI trigger. Entry’s should be made as close as possible to the 1.5030 price handle. Limits should be set at 1.4850, looking for a minimum return of 180 pips on the position. Stops should be placed over the June high at 1.5090 or better risking 90 pips for a clear 1:2 Risk/Reward ratio.
Alternative scenarios include price breaking above resistance with new highs being formed
Walker England contributes to the Instructor Trading Tips articles. To receive more timely notifications on his reports, email instructor@dailyfx.com to be added to the distribution list.
