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A GBP/AUD Reversal with Room to Run

A GBP/AUD Reversal with Room to Run

Liam McMahon, Head Forex Trading Instructor

More hawkish bias from the RBA last night initiated what looks to be a double-top reversal pattern in GBPAUD, which is overextended to the upside and may now be a prime target for a short trade.

GBPAUD can be a tough pair to trade, as it is prone to very large, very violent moves. In fact, the pair is up by nearly 3,000 pips since April alone! Right now, though, the chart for GBPAUD looks to be setting up a very nice reversal pattern.

This week’s rejection of the 1.74 level following the Reserve Bank of Australia (RBA) rate decision may have created a double-top reversal pattern in GBPAUD, the neckline of which sits at roughly 1.6860. From here, a break of that 1.6860 neckline would open up a move down to about 1.62, where the 200-day exponential moving average (EMA) currently sits.

Right now, the GBPAUD pair is trading in a well-defined range between 1.6860 and 1.74, and brave range traders could try to short the pair here, targeting the bottom of that range.

More conservative range traders could try buying GBPAUD at 1.6860, but my favorite strategy would be to sell a break of the range.

Guest Commentary: Double-Top Reversal Pattern in GBP/AUD

A_GBPAUD_Reversal_with_Room_to_Run_body_GuestCommentary_LMcMahon_October1A.png, A GBP/AUD Reversal with Room to Run

The neutrality of the recent RBA statement is going to clear some upside room for the Australian dollar (AUD), in my opinion, as fears of verbal intervention or another rate cut fade. This Aussie upside offers a great deal of GBPAUD downside, as the pair is overstretched after a significant run higher this year. This potential double top offers a great opportunity for the pair to retrace some of its gains and rest a bit before likely pushing higher to end the year.

By Liam McMahon, Currency Strategist,

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