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The Eye of the Storm

The Eye of the Storm

Walker England, Trading Instructor,

The GBP/AUD pair continues it’s descent that began nearly a decade ago back in 2002. Most notably our trend resumed two years ago at a high of 2.0979. Price has continued to move lower during this time period and has established a trend of over 5500 pips!

Looking at this pair, we can see a prime example of how money follows yield. Currently, the AUD holds a central banking rate of 4.75% while their UK counterparts at the ECB hold rates at .50%. As investors search for the highest rate of return the Aussie Dollar has been a prime investment vehicle for yield seekers.

GBP.AUD_body_Picture_1.png, The Eye of the Storm

Price Action

Taking price in to a 4hr chart, we can see our price testing and failing to break support near the 1.5000 handle. After establishing a recent high on April 5th a wedge formation has been developing increasing our chances for breakout potential. Generally wedges are seen as continuation patterns and we should keep our eye on breaks below this level.

GBP.AUD_body_Picture_2.png, The Eye of the Storm

Trading Opportunity

Our strong downtrend gives us the ability to sell if price breaks support moving lower. Traders can look to sell a fresh break of support, if price breaks below and holds beneath 1.5500 once support breaks it becomes new resistance and stops should be placed above this point near 1.5600. Using a 1:2 Risk/Reward ratio, limits should be place at 1.5300 or lower for a minimum profit of 200 pips.

Alternative scenarios include watching for price to break higher above resistance. If this occurs trades should look for chances to add fresh sell positions near the long term trend line at 1.6000.

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.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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