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Bearish Flag on GBPAUD: Buy Australian Dollar?

RBA Cuts Rate by 25 bps, AUDUSD Hit Monthly Lows
RBA Cuts Rate by 25 bps, AUDUSD Hit Monthly Lows

Despite yesterday’s dovish RBA meeting minutes, the Australian dollar was able to finish higher against most of its major counterparts. AUDUSD rallied up the charts to a high of 0.6834 after bottoming out at 0.6783. It closed with a 17-pip gain at 0.6825. Meanwhile, GBPAUD bounced off resistance at 1.9075 before closing at 1.8927.

Market sentiment to change?

Risk appetite propped equities and higher-yielding currencies yesterday. It would seem that news about Chinese company, Huawei, getting a 90-day extension to continue its business with US firms was enough for investors to seek assets that offer higher returns than safe havens.

However, today could be different for the Australian dollar. The US Senate passed the Hong Kong rights bill which would ban the sale of certain munitions to Hong Kong police. The news could prevent the US and China from reaching an agreement on phase one of trade negotiations. China has previously threatened to impose tariffs on American goods if the US interferes in the ongoing unrest in the city.

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GBPAUD Outlook

Resistance at 1.9075 where GBPAUD previously hit a high in October 16, held perfectly in yesterday’s trading. The hourly time frame now shows what looks like a bearish flag chart pattern. In forex trading, this is often seen as a signal to sell as the consolidation following the drastic drop could be a sign that bears would soon push prices lower.

A break below yesterday’s lows at 1.8908 could mean that GBPAUD would soon fall to support around 0.8763. The currency pair has previously found support at this level and it also coincides with the rising trend line from connecting the lows of October 10 and November 7.

On the other hand, a bullish close above the 100 SMA could push GBPAUD back up to resistance at 1.9075.Download our latest quarterly market outlook for our longer-term trade ideas.

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