GBPAUD Has Seen a Breathtaking Rally, but More Upside Still Possible

At the start of this month, GBPAUD bulls were in full panic mode. The volatile pair had dropped to a new 10-month low to approach the 1.7200 level, down nearly 2,000 pips from the January high. In retrospect, the lopsided balance of buyers and sellers at that point represented the apex of selling pressure, and rates have since rallied back with a vengeance. The pair has surged a breathtaking 1,300 pips in just 2.5 weeks and is now at its highest level since mid-March. After such a massive move, the biggest question on the tips of traders’ tongues is, “Can the GBPAUD rally extend further or is it due for a reversal?”

The GBPAUD daily chart shows no shortage of bullish signals. For one, the big rally has taken rates back above the 200-day moving average, which has reliably provided support and resistance thus far this year. In addition, the pair broke above major previous resistance at 1.8340 on Monday. One of the basic tenets of technical analysis is that previous resistance, once broken, becomes a future area of support, so this area may put a floor under any short-term dips over the rest of the week. Meanwhile, the secondary indicators show about what you’d expect: the MACD shows strongly bullish momentum, though the RSI has surged into overbought territory, raising the risk of a pullback or consolidation.

Overall, the technical evidence suggests the GBPAUD rally is more likely to continue than reverse at this point. To the topside, the next level of resistance to watch is the 78.6% Fibonacci retracement of the January-September drop at 1.8763; bulls may look to take their near-term profits if and when rates reach that level. On the other hand, if rates reverse back below the key 1.8340 level and the 200-day MA near 1.8200, it would erase the bullish bias and suggest a deeper pullback heading into October.

Key Economic Data / News That May Impact GBPAUD This Week (all times GMT):

Thursday: RBA Governor Stevens speech (2:30), UK CBI Realized Sales (10:00), BOE Governor Carney speech (12:40)

Friday: No major announcements