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March 24, 2021

GBP/AUD Deep Dive: Break or Range?

Bart Kurek

Looking at the overall trend on GBPAUD, since the heavy drop from 5-Year highs in March 2020, price has been consolidating between 1.74 and 1.85. We can see price moving back and forth between these levels and price not making any significant moves or breaks. That being said, it is still a 1100 pip range, and so it is definitely beneficial to get in during this ranging phase.

Zooming in on GBPAUD, price broke out of a descending triangle in the opposite direction, to the upside. And since then it's created an EQL at 1.779 and collecting orders from the Order Block (OB) at 1.81-1.822. We can see price is just about collecting these orders from the 0% mark in the OB and making swift moves to the downside, towards the EQL.

Unless new signs of a breakout or a break of this consolidating trend form, I will be looking to get in on this repeated event, enter at the OB and look for targets at the EQL, then trail my stop loss and take profits lower once we see price reaches the initial target.

Moving on from technicals, so far in 2021, both the GBP and the AUD are included in the best performing G10 currencies. The Pound appeared to gain on the bad start to the year after leaving the EU. However, this is now switched to relative vaccination rates, with the UK delivering one of the fastest paces of vaccine rollout.

Another potential driver which favours the Pound are the 2-year swap spreads, the difference between interest rates on offer in the UK and Australia. The BoE said it did not envisage cutting interest rates to 0% or less given expectations for a rebound in the UK economy. This has allowed the yield paid on UK bonds to rise relative tot hose in other countries, which is supportive of the Pound.

Early March we had news of a fresh record high in Australia's trade surplus, reported by the ABS that trade surplus in Goods and Services hit A$10.1B in January, representing a A$3B improvement on December. The main driver for the boost was solid demand for raw materials from China. Demand for these raw materials could find support for the AUD over the next coming months.

view retail sentiment data here

Retail Sentiment data shows most traders are long on GBPAUD currently, but sellers aren't too far off at 40% and therefore showing it's quite mixed at the moment.

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