The GBP/AUD pair initially fell during the course of the session on Wednesday, but found enough support near the 2.12 level to turn things back around and form a nice-looking hammer. While this is a very positive sign, and I do think that the Australian dollar is a bit overbought versus the US dollar, the truth of the matter is that we have broken a significant uptrend line. With this, I feel that a break above the top is hammer might be a short-term buying opportunity, but I would be very cognizant of the 2.15 level above. I think that this level should be massively resistive now.
I think that even if we get above the 2.15 level, it’s more than likely going to be difficult to break above the uptrend line. So having said that, we may be in the midst of a trend change. These are typically messy affairs, but I think that short-term probably favors the upside. Ultimately, if we break down below the bottom of the hammer for the session on Wednesday that would essentially confirm a change of trend for myself.
Volatility nonetheless
I believe that one thing that we will see as volatility. After all, it’s difficult to imagine that the market could make a smooth move lower, or ignore the fact that we have broken down quite a bit. With that being the case, it’s probably only a matter of time before any move is reversed on short-term charts. In fact, it is probably easier to simply buy this market for short-term moves only. Once we make a move below the bottom of the hammer, I think then you can start to think more long-term when it comes to selling this market. On the other hand, if we break above the top of the uptrend line again, that pretty much negates the potential selling pressure, at least from a short-term perspective. Nonetheless, this is going to be a very interesting pair to watch, as both of these currencies have been very soft over the last several months.
