GBPAUD has recently broken below support at the 1.9350 minor psychological level and is making a correction from the selloff. 

Price bounced off the 1.9000 major psychological support and is pulling up to the retracement levels on the 1-hour chart.

Resistance at the 50% Fibonacci retracement level seems to have held and price could resume its drop back to the previous lows near the 1.9000 mark. After all, this area lines up with the broken support. Stochastic is moving down but is almost in the oversold area, which means that a quick bounce could take place.

In addition, the shorter-term moving average is starting to cross back above the longer-term moving average, hinting that a rally is possible. If so, GBPAUD could make a higher correction to the 61.8% Fibonacci retracement level. A break above this area could mean that a reversal is underway and that the pair could head up to the next resistance at 1.9600.

Event risks for this trade setup include the U.K. CPI release, which might indicate another drop in price levels. In that case, the pair could resume its downtrend as it would confirm that the BOE is a long way from tightening monetary policy. On the other hand, stronger than expected inflation readings could suggest that a recovery is taking hold and provide support for the pound.

Other catalysts for this trade this week include data from China, particularly its GDP and industrial production figures. Weak readings are expected, which might lead to a selloff for the Australian dollar, but an upside surprise could yield strong gains.

Also lined up this week is the Australian jobs report, which might indicate another slump in hiring. Underlying labor components haven’t been so promising and traders seem to have priced in weaker than expected employment figures.

By Kate Curtis from Trader’s Way