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GBP/AUD Coming Off Critical Resistance

Last updated 2/2/2009 1:38 PM EST (GMT -5) 0 Comments - Add your comment

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FX360 Technical Analyst Staff

Technical Analyst, GFT

Last week's " GBP/AUD may provide excellent sell opportunity " technical feature discussed the potential for converging bearish Gartley patterns to complete near 2.2730-2.2850 providing an ideal selling opportunity. Although a bit more quickly than anticipated, prices did in fact rally to a high of 2.2863 completing this anticipated sell pattern as of Friday’s close. 

Subsequently, the GBP/AUD has already dropped over 500 pips since Sunday's open with a bit more room down to an initial profit target just above the 38.2% of CD (2.2084). Currently, prices may have found minor support at 23.6% of the CD rally (see 2hr chart below), which is somewhat of a concern as we do see some wide ranging candles on the way up from point C to point D. These wide-ranging candles are oftentimes a continuation signal in which case there is a slightly higher probability for pattern failure, however, the bearish gap over the weekend may act as counter-balance of sorts.

All things considered, we still view this as a solid medium-to-long term sell signal with stops placed just above point D at 2.2881. Initial profit targets currently set just above 38.2% and 61.8% of CD at 2.2084 (T1) and 2.1584 (T2), respectively. With current prices hovering around 2.2600 there is an initial risk/reward ratio of approximately 1:2 to T1, and 1:4 to T2.

As always, risk management is of the utmost importance. A move above point D prior to reaching T1 would suggest a potentially strong bullish continuation move. If point D holds, a move below point A (2.0229) would signal a potentially strong bearish continuation. Updates to come as this trade progresses....

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