The British pound continues to see a bit of a test of support, but at this point, there is still a floor.
GBP/AUD
During the trading session on Monday, we’ve seen the British pound gap higher against the Australian dollar, but it has given back those gains since then and now looks as if it is getting ready to drop back towards the 1.87 level, an area that previously has been supportive more than once. If we were to break down below there, then the 1.08 level could be a target as well.
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Ultimately, this is a pair that’s been pretty sideways since March, and it’s difficult to imagine that things are suddenly going to change. However, it is worth noting that the overall attitude seems to be negative, and with the Bank of England very likely to be somewhat neutral at best and the Reserve Bank of Australia looking increasingly hawkish, it does make a certain amount of sense that there is a repricing of the direction of both central banks and the interest rate differential between the two currencies.
Momentum is on your side if you are a bear in this market
Momentum is on your side if you are a bear in this market, but the 50-day EMA above could be tested again by those who are trying to pick the bottom, value hunters for sterling, if you will. That is sitting just below the 1.90 level, which is a large, round, psychologically significant figure as well.
Quite frankly, this is a market that I have no interest in trying to buy at this point. It has persisted in its selling pressure, and the Bank of England continues to be somewhat lackluster in its attitude of trying to support the pound. With that being the case, the Australian dollar may in fact break out to the downside.
If it does, I’m starting to look at the 1.86 level as a major support level. Anything underneath there could unleash pretty significant selling. Between now and then, rallies still look suspicious to me, and it looks like a selling opportunity at the first signs of exhaustion.
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