Currency Pair of the Week: GBP/AUD

Although the Aussie has been strong, Brexit headlines should be the driving force behind this pair.

FOREX 3

The main driver of the Pound this week will continue to be Brexit.  Officials are meeting in London to discuss a trade-deal, however as each day passes towards the end of the year, hopes fade more and more that a deal will get done.   The first positive signs in months came on Friday as the Telegraph reported that the EU is willing to “give in” on some of the UK fishing rights, however talks on governance over a deal and a level playing field have not budged.  However, latest reports are that talks over the weekend were “difficult”.   If no deal is signed, tariffs and restrictions to trade will go into effect on January 1st

The UK has been under lockdown since November 5th; however, it will be lifted this Thursday and the country will return to a tier system to monitor the coronavirus.  The lockdown appears to have worked, as the R rate fell below 1 last week, meaning the virus spread is slowing.  Retails sales and manufacturing data have been surprisingly strong; however, we won’t see November’s Claimant Count Change until December 15th.  The BOE continues to be dovish but have lessened their stance on negative interest rates.  Chancellor of the Exchequer Rishi Sunak continues to work on an addition stimulus plan.

This week is full of data from Australia.  In addition to the RBA Interest Rate Decision, Q3 GDP will be released, with expectations of 2.5% vs -7%  in Q2.  RBA Governor Lowe will speak on Wednesday and Trade Balance and Home Sales will also be released this week.  At the RBA’s November meeting,  rates were cut from 0.25% to 0.1% and they said they would buy 100 billion Australian Dollars’ worth of government bonds of 5 to 10-year bonds over the next 6 months.  At this meeting, expectations are for unchanged, however the statement will be watched for less dovish comments as the Q3 GDP is expected bounce.  In addition, the coronavirus in Australia is under control, with many states lifting restrictions and lockdowns.  Even Victoria, the once largest hotspot in Australia for the coronavirus, has gone a month without a new case! 

The Australian Dollar has been on a tear against most currencies lately, primarily driven higher by a weak US Dollar. GBP/AUD has moved lower from its highs on March 19th at 2.0852 to the lows on September 11th near 1.7493. The pair has sense bounced, however has failed to even reach the 38.2% Fibonacci retracement level at 1.8781, only bouncing to 1.8527.  The pair failed twice to trade above its June 12th highs of 1.8452.  Price also recently met a downward sloping trendline from the March highs near 1.8280.

Source: Tradingview, City Index

On a 240-minute timeframe, GBP/AUD has been in a symmetrical triangle since early October as price grinds towards the apex.  The pair tested the 50% retracement level from the September 11th lows to the October 22nd highs numerous times, however, it failed to close significantly below there each time.  On Friday, the pair converged with that 50% retracement level and the upward sloping trendline from the triangle and bounced, however is nearing horizontal resistance at 1.8130.  Resistance above there is the downward sloping trendline from the triangle near 1.8275. Support below remains at the 50% retracement level which continues to converge with the upward sloping trendline, as well as the psychological big round number at 1.8000.  Support below is near 1.7875.

Source: Tradingview, City Index

Although the Aussie has been strong as of late, Brexit headlines should be the driving force behind this pair.  Negative news will push the Pound lower while talks of a trade-deal will send it higher.


Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.