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Analysis

GBPAUD technical analysis | Bullish continuation

BY Janne Muta

|September 6, 2023

In this comprehensive GBPAUD technical analysis report we study this market across multiple timeframes, from weekly to 4-hour charts, while also briefly touching on fundamental factors affecting both the UK and Australian economies.

On the weekly chart, the GBPAUD pair has shown a significant rally of 14.5% since January and continues its uptrend despite a two-week retracement.

The moving averages SMA (50) and SMA (20) are indicating bullish momentum, with the market trading well above the SMA (20). Key support levels are in the 1.9310 –1.9392 range, a technical confluence of Fibonacci retracement and market structure, making it a critical area for maintaining the uptrend.

On the daily chart, both SMAs and the Stochastics Oscillator offer bullish indications, with a critical support level at 1.9465. The 4-hour chart shows a market losing momentum after a strong breakout rally from a bearish trend channel.

Fundamentally, divergent central bank policies contribute to the pair's dynamics. The UK economy faces a complex landscape with high inflation and a stressed labour market, while the Australian economy is in a calibration phase with challenges such as subdued consumer spending and elevated interest rates.

The next key risk event for this market are UK Monetary Policy Report Hearings today and Australia Trade Balance and the RBA Gov Lowe's Speech tomorrow.

Read the full GBPAUD technical analysis report below.

GBPAUD technical analysis

GBPAUD technical analysis, Weekly Chart

Weekly GBPAUD technical analysis

GBPAUD pair has rallied approximately 14.5% since the January low and is still trending higher in the weekly timeframe. After two weeks of contra trend retracement move the upward momentum has resumed this week.

While there are fundamental reasons (central bank policy divergence) for the rally, in this GBPAUD technical analysis report we will focus on technical factors and price action analysis.

Both moving averages SMA (50) and SMA (20), are pointing higher with the fast SMA above the slow. On top of this, the market is trading well above the SMA (20) indicating strength. Due to the recent retracement (two weeks of movement to the downside), the Stochastics Oscillator (5.3.3) is pointing lower after briefly visiting the overbought area.

Note, however, that in uptrends the overbought conditions can and do happen regularly. Their predictive value is small, while oversold conditions in the oscillators are rare in uptrends and therefore more valuable in this sense.

The nearest support for the pair is a technical confluence area at the 1.9310 – 1.9392 range. GBPAUD technical analysis shows that this is where the bull channel low and the 23.6% Fibonacci retracement level coincide with a market structure level (a former resistance at 1.9392).

The GBPAUD pair remains in an uptrend above this area and could test the recent YTD high at 1.9970. Should the market slip below the confluence area and gather downside momentum in smaller timeframe charts a move to 1.8924 could be in the cards. This could lead to a trend reversal.

GBPAUD technical analysis, Daily Chart

Daily GBPAUD technical analysis

The GBPAUD daily chart shows a higher swing low at 194.64 and a strong rally. If the rally continues today we have further bullish evidence in the daily timeframe chart.

Currently, both the SMA (20) and the SMA (50) point higher together with the Stochastic Oscillator giving bullish indications.

GBAUD technical analysis in the daily timeframe chart reveals a key daily support level at 1.9465. This is the latest reactionary low and as it was followed by a strong rally higher the level is technically quite significant. The strong momentum candle suggests there’s considerable buying interest in this market above the 1.9465 level.

However, please keep in mind that technical indications are only as good as the price action that follows them. The market needs to either keep on pushing higher or create a higher reactionary low above the level in order for the upside to remain a more probable direction for future price moves.

Follow the intraday timeframes to evaluate the market strength before making trading decisions.

The Stochastics Oscillator in the daily timeframe is pointing higher (bullish) after giving a buy signal on August 30th. If the bullish momentum is maintained look for a move to 1.9970. A break below 1.9465 would indicate a move to the confluence area discussed above in the weekly GBPAUD technical analysis.

GBPAUD technical analysis, 4h Chart

4h GBPAUD technical analysis

After breaking out of a bearish trend channel the market has rallied nicely but is losing momentum at the time of writing this. There was a retracement back to a market structure level at 1.9651 with the 38.2% Fibonacci retracement level right below it.

If the market starts to trade below 1.9651, look for a move to the confluence area between the SMAs and the 50% retracement level (1.9607 -1.9596). If the 1.9651 support level holds, look for a rally above today’s high (1.9748).

GBPAUD technical analysis - Currency strength graph

GBP and AUD currency strength analysis

The recent rally in GBPAUD has resulted in GBP being significantly stronger than AUD at the time of writing this. While USD is the strongest the GBP is right behind it and the AUD is second weakest currency among the major currencies we track in this chart.

To gain better understanding on the potential future price moves in these currencies refer to the GBPAUD technical analysis above.

Client sentiment graph (GBPAUD technical analysis)

Client sentiment analysis

TIOmarkets clients are extremely bearish on GBPAUD with 94% of them shorting the market while only 6% of clients bullish on the market. Most clients are short even though the GBPAUD technical analysis shows the market in an uptrend.

Please remember that the retail trader client sentiment is a contrarian indicator as most of the retail traders are on average betting against the market trends. This is why, experienced traders tend to trade against the retail client sentiment. You can follow the TIOmarkets client sentiment live on our Forex dashboard.

GBPAUD fundamental analysis

The UK economy displayed a mixed performance in the second quarter of 2023, expanding by 0.4% year-on-year and surpassing market expectations. While the services and manufacturing sectors experienced modest growth, the mining sector saw a significant decline. Household consumption and government spending rebounded, but both exports and imports contracted.

Inflation Trends and BOE Monetary Policy Actions

Inflation eased to 6.8% in July, down from 7.9% in June, primarily due to a slump in fuel prices. Nonetheless, core inflation remained elevated at 6.9%, far above the Bank of England's 2.0% target. This high inflation rate led the Bank to increase its policy interest rate to 5.25% in August, marking the 14th consecutive hike.

UK Labour Market and Trade Dynamics

The labour market showed signs of stress, with the unemployment rate rising to 4.2%, the highest since late-2021. Trade figures for June indicated a reduced deficit but with marginal changes in export levels.

Key industry metrics, such as the Services PMI and Composite PMI, signalled contractions in both the services and manufacturing sectors for August. Although the economy has shown elements of resilience, the high inflation, tightening monetary policy, and stressed labour market suggest a complex and challenging economic landscape ahead.

Australia's Economic Growth and Monetary Policy Stance

Australia's economy grew by 0.4% in Q2 2023, consistent with the previous quarter and in line with forecasts. Although the Reserve Bank of Australia views this as indicative of a potential "soft landing," it has paused interest rate hikes due to concerns over consumer financial health and a contracting GDP per capita.

Uncertainties also loom regarding trade relations with China, which is facing a housing crisis.

At the same time BOE has been more restrictive in their monetary policy creating upward pressure on GBPAUD currency pair. Please remember though that even if the policy divergences between RBA and BOE can set the tone for this market, GBPAUD technical analysis gives traders specific entry and exit points.

Domestic Challenges: Consumption and Savings

While the economy benefits from a robust trade surplus and vigorous public investment in sectors like health and transport, there are also domestic challenges.

Household consumption, a key driver of the economy, has been tepid due to elevated interest rates, growing at a mere 0.1% in the last quarter. Additionally, the household savings ratio has declined to 3.2%, its lowest since Q2 2008, indicating potential financial stress among consumers.

Balancing Growth and Economic Challenges

Inflation, although moderating, remains a concern at 6.0%, compelling the Reserve Bank of Australia to maintain its cash rate at 4.1%. The central bank is in a "calibration phase," suggesting that small adjustments to monetary policy could be on the horizon to manage inflation and stimulate growth.

Overall, the Australian economy is at a critical juncture, balancing sustained growth against challenges such as China concerns, high inflation and subdued consumer spending.

While external pressures from China's economic slowdown can affect the AUD in the long run, GBPAUD technical analysis can help traders make sense of daily price fluctuations.

Read more on Australian economy in our recent AUDUSD report.

Read more on UK economy in our recent report on GBPJPY.

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The Next Main Risk Events

  • GBP - Monetary Policy Report Hearings
  • CAD - BOC Rate Statement
  • CAD - Overnight Rate
  • USD - ISM Services PMI
  • AUD - Trade Balance
  • AUD - RBA Gov Lowe Speaks
  • CHF - Foreign Currency Reserves
  • USD - Unemployment Claims
  • CAD - Ivey PMI
  • USD - FOMC Member Harker Speaks
  • CAD - BOC Gov Macklem Speaks
  • CAD - Employment Change
  • CAD - Unemployment Rate
  • CNY - CPI
  • CNY - PPI

For more information and details see the TIOmarkets economic calendar.

DISCLAIMER: Tio Markets offers an exclusively execution-only service. The views expressed are for information purposes only. None of the content provided constitutes any form of investment advice. The comments are made available purely for educational and marketing purposes and do NOT constitute advice or investment recommendation (and should not be considered as such) and do not in any way constitute an invitation to acquire any financial instrument or product. TIOmarkets and its affiliates and consultants are not liable for any damages that may be caused by individual comments or statements by TIOmarkets analysis and assumes no liability with respect to the completeness and correctness of the content presented. The investor is solely responsible for the risk of his/her investment decisions. The analyses and comments presented do not include any consideration of your personal investment objectives, financial circumstances, or needs. The content has not been prepared in accordance with any legal requirements for financial analysis and must, therefore, be viewed by the reader as marketing information. TIOmarkets prohibits duplication or publication without explicit approval.


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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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