GBP/AUD maybe headed for a longer-term bearish turn as the pair hits a major resistance area, as the Bank of England leaned a bit more dovish than expected during today’s statement.
Bearish Reversal on GBP/AUD Ahead?
On the daily chart above of GBP/AUD, we can see that the pair has been in a steady uptrend since the beginning of the year, now bringing the pair up to a major resistance area where are the bears took control of the pair several times in 2020.
With stochastic showing overbought conditions and the Bank of England not signaling any early moves to trim the extreme easy money policies / pandemic support, British pound Bears may hop back into the market at this time and hold the resistance at 1.8500 once again.
This setup may get help from Aussie bulls as recent data has been net positive from Australia, likely driving speculation that the reserve bank of Australia will raise rates in 2023, or possibly soon in late 2022. And despite pockets of pandemic concern the odds are pretty good that Australia will continue to recover from the pandemic much more quickly than the UK, making an argument that will drive the Aussie to out perform Sterling in the short term.
With that potential scenario in mind, we think that if we see bearish reversal patterns around this major psychological level then the odds are pretty good that GBP/AUD bears will take back control. And if broad risk sentiment continues to lean positive (likely the case as long as the Delta COVID-19 variant doesn’t get out of control) then that should support the Aussie more than the British pound for now.
This set up is also a very positive one in terms of risk-to-reward if using a move above the strong resistance area as a stop guide and the major support area around 1.75 as a target. Depending on where you set your stop, this could give you a range of return-on-risk of about 3:1 to 5:1.
What do you all think? is this a good time to short the British pound against the Australian dollar, or is the uptrend that started at the beginning of the year still intact? Let me know in the comments section below!
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