GBP/AUD is a pair I brought to your attention the other day, as I saw serious potential for a significant reaction in one direction or the other. Remember, I had mentioned that we were approaching the 1.50 level, and it would certainly cause a reaction psychologically in the market in one direction or the other. The catch of course was whether or not we would bounce or continue to drill lower.
The Thursday candle was a hammer off of the 1.50 level, and it did suggest to me that perhaps a bounce is coming. However, we saw the bullishness of that candle arrays during the Friday session that was indeed bearish. In fact, it formed a bit of a shooting star which would suggest more continuation of the downtrend. This lines up nicely with my original thought process, and as such this pair still is attracting a lot of my attention.
1.5 holds the key
For me, without a doubt the most important number on this chart is 1.5 as it shows a massive support level. Interestingly enough though, the flag I see on this chart is suggesting to me that a breakdown should lead us to the 1.46 area or so. We have undoubtedly broken down the bottom of the flag, so by all means selling is the only route to go. However, with the significant support level just underneath the flag, it was prudent to wait until we got below the support in order to start selling.
For me, if we can close on the daily chart below 1.5 I would be more than willing to start getting aggressively short of this pair. The Australian dollar in general looks pretty strong, so the fact that he gains on the British pound would exactly be a massive surprise. After all, the British economy is directly affected by the situation in the European Union, while the Australians have the luxury of exporting quite a bit of commodities to places like China. At this point in time, most economies would agree that it's probably better to be aligned with the Chinese than the Europeans. On the daily close below 1.5, I am short of this pair.