GBP/AUD Technicals: 02-20-2018
IFC Markets | Feb 20, 2018 06:43AM ET
Brexit negotiations fall behind the schedule
In this review, we want to consider the dynamics of the currency pair British Pound against the Australian dollar. Is there a possibility for GBP/AUD quotes to reduce?
It means a weakening of the British pound against the Australian dollar. On February 16, 2018, British Prime Minister Theresa May met German Chancellor Angela Merkel. There was no special progress in the negotiations. During the final press conference, Merkel said that she was disappointed with the negotiation process, which has fallen behind the schedule. Recall that the UK exit from the EU started on March 29, 2017, and it has to come to an end by the end of March 2019. Earlier it was noted that Brexit could significantly damage the UK economy in case of a “hard Brexit” scenario. In turn, this may weaken the pound. The main point of Brexit discussion is the terms of the trade agreement between Great Britain and the EU countries after Britain leaves the EU single market.
This Wednesday, important data on the labor market and wages for December will be published in the UK. They may affect the dynamics of the pound since Bank of England takes this report into account in case of changes in monetary policy. Its next meeting will be held on March 22, 2018. Note that the UK inflation has currently reached 3% and exceeds the target level of 2%. The possible increase in the Bank of England rates may obstruct the decline of GBP/AUD and even, conversely, cause its growth. The dynamics of the Australian dollar will also depend on the data on the wages in Australia for the Q4 of the last year. Their publication is also expected on Wednesday, but earlier than the UK labor market review. The reason is the same - the Reserve Bank of Australia (RBA) does not exclude a rate hike. At present, it is 1.5% against the Bank of England rate of 0.5%. The next RBA meeting will be held on March 6, 2018, much earlier than the Bank of England meeting.
On the daily timeframe, GBP/AUD: D1 is in the rising trend. However, its growth has slowed down and a number of technical analysis indicators formed bearish signals. To open a Sell position, you should wait for the support line of the rising trend to breach down. The further price decrease is possible in case of the publication of positive economic news in Australia, and the negative one in the UK.
- The Parabolic indicator gives a bearish signal.
- The Bollinger® bands have widened, which means higher volatility.
- The RSI indicator is above 50. It has formed a negative divergence.
- The MACD indicator gives a bearish signal.
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The bearish momentum may develop in case GBP/AUD drops below its last fractal low at 1.757. This level may serve as an entry point. The initial stop loss may be placed above the two last fractal highs, the 1.5-year high, the upper Bollinger band and the Parabolic signal at 1.8. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 1.8 without reaching the order at 1.757, we recommend cancelling the position: the market sustains internal changes that were not taken into account.
Summary of technical analysis
Position - Sell
Sell stop - below 1,757
Stop loss - above 1,8
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