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Fade the Rally or Trade a Break Out; GBPAUD

by on November 21, 2013 8:07 pm BST
 

The selloff of the Australian dollar created massive breakouts for Aussie minor crosses, and the GBPAUD just extended almost 300 pips today alone. Is there an opportunity for a rally fade, or a momentum trade for additional breakout?

Looking at a long-dated daily chart of GBPAUD, levels are placed where potential can be seen. Price action broke through 1.7435, but is failing to push up through the next level of resistance at 1.7587. A fade could be placed in an attempt to profit from momentum exhaustion, which is typical at the end of these very large movements. A fade could be place near the top of the range with a tight stop loss. Look for a pullback to the broken resistance, now support, at 1.7435 and proceed with a trailing stop. Also, keep an eye out for movements in the Australian dollar. Is could be due  for a pullback, which can be beneficial for GBPAUD shorts.

1D Chart of GBPAUD

1D Chart of GBPAUD

On the other hand, the International Monetary Fund (IMF) reported that the Australian dollar was ten percent overvalued. This caused a rapid selling in the Australian dollar, and it could continue over the next couple days, if not longer. This is positioning GBPAUD for a bigger breakout.

On the longer-dated daily chart of GBPAUD, there is a great deal of potential. The pair is trading underneath the next level resistance of 1.7587. If this level can be overtaken, GBPAUD has the potential to breakout 1.8064. There is likely to be a slight pullback and consolidation after today’s 275 pip day, nut the trend strength remains very strong. Upside potential is still in play as long as Aussie continues to remain weak with GBPAUD momentum to remain where it is. The ADX has a strong reading of 25 with a +DMI reading of 32.

1D Chart of GBPAUD (Long-dated)

1D Chart of GBPAUD (Long-dated)

Minor pairs can be volatile, so keep stop-losses within reason and monitor trend strength and underlying currencies.