GBP/AUD Bearish Correction to 1.8600?

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GBPAUD is still trending lower, as price formed lower highs connected by a falling trend line. Another test of this resistance level seems to be brewing.

The trend line coincides with the 61.8% Fibonacci retracement level near the 1.8600 major psychological mark. This also happened to hold as support in the past, so it might serve as resistance from here.

The 100 SMA is below the 200 SMA to confirm that the path of least resistance is to the downside. Also, the 100 SMA lines up with the trend line to add to its strength as a ceiling. The gap between the indicators is widening to reflect strengthening bearish momentum.

If the Fibs hold as resistance, GBPAUD could resume the drop to the swing low around 1.8435. Stochastic is already indicating overbought conditions or exhaustion among buyers, so turning lower would draw sellers back in. A bearish divergence can be seen since stochastic had higher highs while price had lower highs.

RSI has a bit more room to climb before reflecting exhaustion among buyers, so a larger pullback could be due.

There are no major reports due from the UK and Australia today, although it’s worth noting that the UK retail sales report already reflected supply chain issues weighing on consumer spending.

Although the BOE is pressured to tighten monetary policy to keep price pressures in check, the main concern in the UK economy is that of stagflation.

Meanwhile, China reported stronger than expected trade figures, which might be good for its top trade partner Australia. Still, iron ore imports took hits as demand has slowed.

A pickup in risk appetite might also be bullish for the Australian dollar, especially if the US CPI readings fall short of estimates. This could mean that the Fed could rethink tapering in November or might delay their rate hike until much later next year.

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