GBP/AUD Corrective Setup In Play

As volatility and confusion spreads around the world markets the GBP/AUD looks firmly set within a corrective structure. However, the bulls are starting to gather and the pair might be ready to shine, albeit in the short term.

The currency pair has been on somewhat of a rollercoaster ride over the past few weeks and it steadily declines in line with the broader Pound sentiment. However, the past few days have seen the continuation of a constricting pricing channel that is readying to provide opportunities to traders.

To date, 2016 has seen the pair trade within a relatively steady range with numerous tests of the short term channel. Subsequently, the last few days have seen the pair retreat to the bottom of the channel and an area which coincides with support. Subsequently, a retracement back towards the top of the channel is now likely. In addition, the chart patterns are also signalling some short term bullishness as a relatively tight double bottom appears upon the 4-hour chart.

However, the lagging technical indicators are still largely bearish with RSI appearing depressed within neutral territory whilst the moving averages continue to decline. In contrast, stochastics appears to show the currency having entered an oversold state that may signal a reversal in progress.

Given the currency pair’s position in an area of support, coupled with a double bottom, there is plenty to support a short term bullish run towards the top of the channel.in addition, price actions position near the bottom of the range provides a beneficial risk to reward ratio for any long biased trades.

Ultimately, these types of reversal trades can be difficult to predict given the level of volatility currently in the market. However, the case for a bullish retracement is strong and the downside relatively limited along with a favourable risk and reward ratio. Subsequently, expect to see traders keenly watching the Pound-Aussie in the coming US Session.