Signs of a Bullish Turn in GBP/AUD??

Nearly a month ago, we highlighted the uncanny convergence of multiple bearish technical signals (see “GBP/AUD: Six Technical Signs of a Longer-Term Top” for more). Since then, the GBP/AUD has collapsed around 400 pips, and though we still haven’t reached the intermediate target near 1.7600, there is a growing body of technical evidence that suggests the pair may have seen a near-term bottom.

First, and perhaps most importantly, rates have broken above the bearish trend line off the March 3rd high (the “right shoulder” of the daily head-and-shoulders pattern, not shown). In general, a broken trend line signals a change in trend, though not necessarily a reversal of the previous trend; for example, prices may simply start to “trend” sideways below 1.80 from here, so traders may want to look for further evidence before immediately buying the pair or closing longer-term shorts.

Digging deeper though, the recent technical patterns are showing nascent signs of a shift to a bullish trend. For one, connecting the lows since late March reveals a falling wedge pattern on the 4hr chart – with today’s big breakout, this pattern points to a possible recovery rally back above 1.80. The pair’s RSI also put in a triple bullish divergence with price, indicating waning bearish momentum and increasing the likelihood of a medium-term bottom in the pair.

On a candlestick perspective, the GBP/AUD just put in a large 4h Bullish Marubozu Candle*, which shows strong buying pressure throughout today’s early US session and foreshadows a potential continuation to the topside over the next few candles. Finally, the recent low came in near the same area as last Thursdays low, raising the possibility of a double bottom pattern that would be confirmed by a conclusive break above 1.7900.

Before turning outright bullish, traders should note that the pair still remains in a general downtrend (lower lows and lower highs) on the daily chart. That said, near-term bullish traders may want to watch for a bounce back toward the psychologically-significant 1.80 level, followed by a potential continuation toward the upper-1.8000s, where the measured move targets of the falling wedge and double bottom pattern converge. On the other hand, a drop back below 1.7800 or double bottom support at 1.7740 would turn the bias back to bearish for a possible move down toward 1.7600 support next.

* A Marubozu candle is formed when prices open very near to one extreme of the candle and close very near the other extreme. Marubozu candles represent strong momentum in a given direction.