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GBP/AUD Continues Sharp Reversal After Head & Shoulders Fakeout

GBP/AUD Continues Sharp Reversal After Head & Shoulders Fakeout

2014-01-15 13:15:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- Australian Dollar selling intensifies overnight; Japanese Yen in pain as well.

- Capital flow still focused on geography – Asian-Pacific suffers more than Western Europe, North America.

- No top line event risk for Wednesday.

To keep up with the European data and news as the week goes forward, be sure to sign up for my distribution list.

Intraday Price Perspective

A scan of this morning’s best and worst performers via the Strong/Weak app shows that the GBPAUD is once again the top performer over the past rolling 24-hours – for the second consecutive day. The GBPAUD has been quite volatile, considering just this past Monday, the GBPAUD was the worst daily performer.

Generally speaking, volatility tends to risk-negative; uncertainty breeds fear. In the case of GBPAUD, higher volatility in the market could translate into a broader shift from higher yielding currencies to lower yielding currencies. But volatility arises at another point in the market: at turns. Indeed, with the GBPAUD trading near multi-year highs and the recent uptrend from November having been broken, longs must be cautious.

GBPAUD_Continues_Sharp_Reversal_After_Head_Shoulders_Fakeout_body_Picture_1.png, GBP/AUD Continues Sharp Reversal After Head & Shoulders Fakeout

Earlier this week, we examined a potential short GBPAUD trade predicated around a breakdown below A$1.8225 (or more conservatively, 1.8160). However, in hindsight what was trade conditions highlighted by low liquidity – Japanese markets were closed for holiday – the ‘V-like’ movement in price suggests that the move lower was a fakeout, not a breakout.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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