GBPAUD Peeking Out to a New 5-Year High – Could 1.94 Be Next?

As we wind down another thrilling year, there are no shortage of clear trends in the forex market, but one of our favorites is in GBPAUD. Though economic data has out of the UK has been mixed lately, the Australian dollar has been persistently battered by disappointing news out of Australia itself and China, the country’s biggest trading partner (see my colleague Chris Tedder’s note, “It has been a busy week for AUD, yet AUDUSD still remains glued to 0.8200” for more).

GBPAUD has clearly reflected this economic divergence, with GBPAUD trending smoothly higher within a bullish channel since late November. In fact, the pair hit its highest level in over five years earlier this week before pulling back yesterday. Then, ahead of today’s North American session, rates carved out a clear Bullish Piercing Candle* on the 4hr chart; this candlestick pattern indicates a shift from buying to selling pressure and has led to a resumption of the established uptrend.

Even more significantly, the pair has formed a positive reversal with its 14-period RSI. That is, the exchange rate made a higher low while the indicator made a lower low. This bullish development shows that GBPAUD is actually outperforming the underlying indicator and projects a possible target area all the way up at 1.9335.

Of course, there’s no guarantee that GBPAUD necessarily will rally to that level, but with the multi-year breakout and established bullish channel to support the positive reversal pattern, we wouldn’t be surprised to see GBPAUD reach that level in the coming days. At this point, only a break back below the bullish channel at 1.9050 would erase the near-term bullish bias.

*A Piercing Candle is formed when a candle trades below the previous candle's low, but buyers step in and push rates up to close in the upper half of the previous candle's range. It suggests a potential bullish trend reversal.

Source: FOREX.com