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GBPAUD Trading Below Resistance

GBPAUD Trading Below Resistance

GBPAUD, Daily:
The pair has reached a pivot candle low at 1.9622 with the daily Bollinger Bands currently inside the pivot candle and therefore suggesting the pair could be getting overbought. However levels that are resisting a trend are likely to be broken once the market is given some time to work its way through the levels. This could mean corrections lower before the resistance can be penetrated. After price has been moving higher for seven days in a row it becomes less probable that it will extend this bull move higher and we should see one or two days’s worth of corrective moves.

There are exceptions to the rule but in general market tends to honour support levels and violate resistance levels when trending higher. This is why we want to be buyers at support levels, i.e. buying after pull backs. There was a resistance at 1.9469 which was penetrated yesterday and day before. This level is therefore now likely to act as a support level and could come into play if the pair corrects lower from the above resistance.

There was hardly any negative reaction to today’s disappointing Construction PMI release, which suggests further upside orientation in this market. After all a PMI value well above 50 (57.8) tells about expansion. Therefore a pullback to a support at or around 1.9470 (if we ever get one) should be a buying opportunity.

GBPAUD, 2401

GBPAUD, 240 min:
The fact that price is trending higher and tends to find support from smaller time frame support levels tells me that the bidders have a firm belief on UK economy fairing better than its Australian counterpart. As long as this phenomenon exists we can take advantage of it. Should there be a slightly bigger correction I expect this market to attract buying in 1.9386 – 1.9469 range while the nearest 4h support level is a previous pivot high at 1.9542. The hourly 20 period lower Bollinger Bands coincide with the upper end of this range at the time of writing. The next important 4h resistance is in the region of 1.9730.


GBPAUD, 60 min: After the GBPAUD pair found support at 1.9386 it has been trending higher in an ascending trend channel. The arrow in the 1h chart marks the reaction the PMI numbers caused. This down move was quickly met with buying near the 1.9508 support level. Now we’ve seen a reaction from the channel high and the pair is trading at 1.9604 pivot high. The 23.6% Fibonacci level is not far behind.


Long to medium term:
There has been some slowdown lately but the fact that this market did not react with a sell off on UK PMI figures today tells me that the market participants’ focus is in the bigger picture. Economic data from the UK has been better than the data on Australian economy. This is also reflected in the longer term (weekly) bullish trend. At the same time however, price is approaching resistance levels which increases chances that we will see a corrective move in the near future. Support between 1.9386 – 1.9469 could be a level where this market will attract buyer should we get a correction that takes GBPAUD there.

Short term:
More aggressive short term traders could use the minor time frame levels (hourly) as long as the market keeps honouring the supports and breaking into new highs. Currently the pair has reacted lower from a medium term regression channel high which coincides with a channel high in 60 min resolution. In addition a pivot candle low at 1.9622 slows down the price advance. I am looking for price action based long signals (in sub hour resolutions) when price comes to the support levels identified in the above charts as long as they are not violated and/or price keeps on moving higher in a steady manner. The 4h resistance level at 1.9729 is my short term target.

Janne Muta
Chief Market Analyst

Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.

Thursday, 02 Apr, 2015 / 1:21

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