GBP/AUD Continues Sharp Reversal After Head & Shoulders Fakeout


Talking Points:

- Australian Dollar selling intensifies overnight; Japanese Yen in pain as well.

- Capital flow still focused on geography – Asian-Pacific suffers more than Western Europe, North America.

- No top line event risk for Wednesday.

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Intraday Price Perspective

A scan of this morning’s best and worst performers via the Strong/Weak app shows that the GBPAUD is once again the top performer over the past rolling 24-hours – for the second consecutive day. The GBPAUD has been quite volatile, considering just this past Monday, the GBPAUD was the worst daily performer.

Generally speaking, volatility tends to risk-negative; uncertainty breeds fear. In the case of GBPAUD, higher volatility in the market could translate into a broader shift from higher yielding currencies to lower yielding currencies. But volatility arises at another point in the market: at turns. Indeed, with the GBPAUD trading near multi-year highs and the recent uptrend from November having been broken, longs must be cautious.

View photo

GBPAUD_Continues_Sharp_Reversal_After_Head_Shoulders_Fakeout_body_Picture_1.png, GBP/AUD Continues Sharp Reversal After Head & Shoulders Fakeout

Earlier this week, we examined a potential short GBPAUD trade predicated around a breakdown below A$1.8225 (or more conservatively, 1.8160). However, in hindsight what was trade conditions highlighted by low liquidity – Japanese markets were closed for holiday – the ‘V-like’ movement in price suggests that the move lower was a fakeout, not a breakout.

--- Written by Christopher Vecchio, Currency Analyst

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