GBP/AUD Correction to Bullish Trend Line

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GBPAUD has formed higher lows connected by a rising trend line that’s been holding since mid-December last year. Price looks prime for a dip to support zones marked by the Fibonacci retracement tool.

The 61.8% Fib is closest to the trend line around 1.8700 and the dynamic support at the moving averages. The 100 SMA already crossed above the 200 SMA to confirm that the path of least resistance is to the upside or that support is more likely to hold than to break.

The 38.2% Fib already seems to be holding as a floor around the 1.8800 handle, possibly sending the pair back up to the swing high at 1.9000 from here. Stochastic is reflecting oversold conditions or exhaustion among sellers, so turning back up would mean that buyers are taking over.

RSI has more room to move south before reaching the oversold region, so the correction might keep going. The 50% level could also hold as support at 1.8765, but a break below the Fib levels and trend line could set off a reversal from the climb.

There are no major reports from both the UK and Australia for the rest of the week, so much of the pair’s movement could hinge on market sentiment. Risk appetite seems to be in play lately, as the Fed appears confident about US and global growth prospects.

In that case, the higher-yielding Aussie could be poised to gain if data does reflect resilience in the global economy. However, the latest round of numbers from China points to some weaknesses in price pressures and consumption.

Also, the focus on another wave of infections spurred by the Omicron variant could keep a lid on risk-taking in the longer run. More restrictions and lockdowns could limit business and consumer activity, which might then hurt demand for commodities.

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