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A GBP/AUD Trade That's "There for the Taking"

A GBP/AUD Trade That's "There for the Taking"

Kaye Lee, Head Forex Trading Instructor

Talking Points:

  • Key Decision Point for GBP/AUD
  • Favorable Risk/Reward on Daily Time Frame
  • Diamond Pattern on 4-Hour Chart
  • A Momentum Hurdle to Contend with

GBPAUD has been rather generous in its uptrend. Although the pair has been consolidating on the weekly chart (see below), the daily time frame has provided plenty of room for profit. Now, the weekly chart is at or nearing a key decision point.

Guest Commentary: Upward Weekly Bias for GBP/AUD

A_GBPAUD_Trade_Thats_There_for_the_Taking_body_GuestCommentary_KayeLee_November19A_1.png, A GBP/AUD Trade That's "There for the Taking"

On the weekly chart, the rising channel supports the uptrend, and the consolidation has price near a level of resistance, which has so far held this week. However, price could break upwards and run off.

Elliott wave counts would suggest at least the potential for a higher high. Even a false breakout as price runs up above the line would provide plenty of opportunity for an intraday trade to work out, and that is the focus of this set-up.

If it builds steam and develops into a run on the weekly chart, then great. If not, though, even a small move should present a favorable profit opportunity.

On the daily chart below, price is nearing a decision level as well as it comes down to test the support of a smaller rising channel. Whether it will bounce or break is anyone’s guess, but the bounce offers better reward for risk, and the upward-trending weekly chart provides a supportive background for this trade.

Guest Commentary: “Bounce-or-Break” Scenario for GBP/AUD

A_GBPAUD_Trade_Thats_There_for_the_Taking_body_GuestCommentary_KayeLee_November19A_2.png, A GBP/AUD Trade That's "There for the Taking"

The four-hour chart below provides more supporting information. There is a diamond formation composed of two triangles, one expanding and the other of the normal, symmetrical variety. In this case, the “heart” of the diamond has been chosen as the most significant level.

The lower support level has been selected as a combination of several candle wicks. Of course, both the top and bottom levels of support coincide with the rising line of support, giving the following support zone: 1.6988-1.7063.

Guest Commentary: Diamond Pattern in GBP/AUD

A_GBPAUD_Trade_Thats_There_for_the_Taking_body_GuestCommentary_KayeLee_November19A_3.png, A GBP/AUD Trade That's "There for the Taking"

The logical trade will occur on the hourly chart as price touches this zone, and recent price behavior suggests it will, as it is already extremely close to it. The hourly chart is showing some signs of momentum as it barrels towards this area, so it would be nice to see some deceleration before this zone is hit.

Guest Commentary: Heavy GBP/AUD Momentum Acts as Hurdle

A_GBPAUD_Trade_Thats_There_for_the_Taking_body_GuestCommentary_KayeLee_November19A_4.png, A GBP/AUD Trade That's "There for the Taking"

Nonetheless, this trade is there for the taking. If the move is a momentum test, then pin bars and engulfing patterns will likely rule the day. If—and this is more likely—price slows down for a few hours before beginning the test, then reversal divergence will be the entry signal.

This is a trend trade, and as usual, two or three tries at it will likely prove worthwhile in the end.

By Kaye Lee, private fund trader and head trader consultant,

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