Chart of the Day GBPAUD

GBPAUD Potential Reversal Zone – Probable Price Path

A trifecta of negative news headlines sees markets adopt a cautious tone – disturbing trends in US COVID19 case numbers, US-EU trade tensions, and another economic downgrade by the IMF. The S&P500 is current down 2½%, following a 2.8% fall in the Euro Stoxx 600 index. Energy is the weakest sector, with crude oil down 5-6%, reflecting the risk-off backdrop and the EIA reporting US crude stockpiles increasing to a record high of 541m barrels. Global rates are lower, with the US 10-year rate down 3bps to 0.68%. New case numbers of COVID19 are accelerating across the US, with 33 states showing increased growth compared to two weeks ago, with notable rises in the South and West. New York, New Jersey and Connecticut will require visitors from hot spots to quarantine for 14 days. These trends threaten the nascent US economic recovery, as states slow down the easing of restrictions and consumers vote with their feet and stay home, in the absence of strict lockdown orders. This is already evident in real time daily data like OpenTable restaurant bookings. The US is not the only region showing increased growth in cases. The WHO noted the dire trend of case numbers in Latin America – rising 25- 50% in the past week for some countries. 

GBP: British economic data improved, market risk appetite rebound is expected to support the performance of the pound. The UK Manufacturing Purchasing Managers Index rebounded from 40.7 to 50.1 in June, which was higher than the market expectation of 45, and it returned to the expansion level again in February. The service industry purchasing managers index rebounded significantly from 30 to a four-month high of 47.6, which was also better than expected. Reuters quoted reports from financial industry and EU officials that the UK and the EU may miss the deadline for assessing future financial market access by the end of June. Negotiations between the two parties have been slow and negotiators are not in a hurry to complete the assessment before the original target

AUD: The development of Australian and US epidemics may dominate the performance of the Australian dollar. With Australia deploying 1000 troops to combat a new Covid-19 outbreak. Moody’s, the rating agency, maintains its rating of Aaa in Australia and its outlook remains stable. Moody’s said that although the Australian economy has been hit by the epidemic, its economic strength will continue to support Australia’s sovereign rating

From a technical and trading perspective, GBPAUD has been in a sustained and strong downtrend and has recently achieved its broadening top objective at the 1.80 level as highlighted on the weekly chart, profit taking has ensued and there is now a window for a corrective phase to develop. On the daily chart yesterday’s close flipped the near term VWAP bullish and as such a move through yesterday’s highs and descending trendline resistance should see bullish exposure rewarded for a test of 1.8450, this thesis is further supported by the noteworthy momentum divergence on the last low.

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