The AUD has been the second strongest major currency in 2021 and the general view is for it to perform well in 2021. In this article, we will look at the outlook for the GBP/AUD cross which we think offers contrary traders a potential low-risk high reward trade setup.
While we are bullish of the GBP for a potential reversal to the upside the majority in the market see more Aussie strength going forward: “We look for AUD to benefit the most within G10 complex. Barring a major drawdown in risk, we also like GBPAUD shorts from here as Brexit premia has largely unwound from sterling vol markets; 1.70 is a reasonable target from our vantage point,” (Mazen Issa TD Securities) The reasons for the market being bullish of the Aussie include:
Commodity prices have been firm in particular Iron Ore which is Australia’s major export.
The market has a bullish view of Chinese economic growth going forward and China is Australia’s major export market. Australia has also not been impacted by the COVID virus as much as many other major economies. The GBP was the worst-performing major currency in 2021 and last Thursday traded at its lowest level against the AUD since October 2017 but we have firmed slightly since then and think the GBP could mount a big rally going forward…
Fundamentals – Bad News Discounted for Sterling and the Good News Discounted in the AUD
The Pound fell as Britain’s third national coronavirus lockdown was put in place, but the UK is moving fast to vaccinate its population: The government is aiming to vaccinate 15 million people in the UK – the over-70s, healthcare workers, and those required shielded vulnerable people by the middle of February.
Another factor to keep in mind is the Brexit Trade deal which is in place with the EU. During the run-up to the deal the GBP was sold off heavily and will be oversold and likely to bounce back not just on the AUD but also many other major currencies such as the NZD for example.
In terms of the Aussie Dollar, the good news is discounted in terms of a V-shaped global economic recovery also commodity prices are likely to fall for the reason a significant proportion of the rise in commodity prices has been driven by heavy speculative buying and USD weakness. We are expecting a rally in the USD and speculators to exit long positions in many commodities that are major Australian exports such as Iron Ore and Copper.
Australia has coped with the Virus well, but it is an export-led economy and the key to the Aussie going forward is global growth and trade and we are not as bullish as the market in terms of seeing a recovery to pre-pandemic levels in the coming months.
In terms of the technical outlook, we have highlighted the key levels to look out for in terms of support and resistance below – the GBP is deeply oversold, and we think the risk to reward is attractive in terms of buying the GBP on strength.
Technical Analysis GBP/AUD
GBP/AUD DAILY CHART: After Falling to test the September and December candle tail lows we have seen 3 x positive higher closes. A breakout above the resistance and the 1.7660 level is expected to trigger a short covering rally up to the 1.800 level to correct the GBP’s oversold condition – we also expect any pullbacks to 1.7400 to find support.
Research provided by LearnCurrencyTradingOnline.com
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