GBPAUD has been forming higher lows, creating an uptrend on its 4-hour time frame. 

In fact, an ascending trend line can be drawn to connect the latest lows and the pair is moving closer to test the rising support area.

RSI is pointing down, suggesting that there’s enough selling pressure left to trigger a move towards the trend line support near the 2.0200 major psychological level. Stochastic is also moving lower, reflecting that sellers are in control at the moment.

Meanwhile, the 100 SMA is still above the longer-term 200 SMA, which confirms that the uptrend is likely to stay intact. In addition, the 100 SMA has been holding as a dynamic support level and might continue to keep losses at bay.

Event risks for this trade setup include the Chinese central bank’s recent decision to increase liquidity by 35 billion CNY. This could keep commodity currencies such as the Aussie supported since stimulus in China would mean stronger demand for Australia’s commodity exports.

The UK is set to release its CBI realized sales report for June and possibly show a decline in the index from 51 to 32, which would reflect lower volumes. A weaker than expected reading might trigger a sharp selloff for the pound, as it might translate to lower consumer spending data.

There are no reports lined up from Australia so the current bearish fundamental bias might still be renewed later on. Data from the country hasn’t been so impressive and the RBA has been inclined to maintain its accommodative monetary policy stance, which suggests that they could still cut rates if necessary. The BOE, on the other hand, has emphasized that their next policy decision is still likely to be a rate hike. This suggests that the path of least resistance for GBPAUD is to the upside.

By Kate Curtis from Trader’s Way