European Open Is The Sell Off Losing Steam or Just Pausing For Breath
Whilst risk assets remained under pressure, there are signs that the risk-off tone has softened as bearish volatility remains on the low side.
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As we await President Trump’s speech and the rollout of his well-telegraphed tariffs, I want to focus on a pair that is less correlated to the risk-on, risk-off moves that could unfold over the next 24 hours—and potentially beyond.
Last week, I outlined a near-term bullish bias for GBP/USD, alongside a higher-timeframe call for some mean reversion. The first of those objectives was met on Monday, with GBP/AUD reaching a five-year high and stopping just short of the 2020 high by less than a typical day’s trading range. But with momentum turning lower, I’m now ready to focus on the potential for mean reversion on the weekly timeframe.
GBP/AUD Technical Analysis (Weekly Chart)
While GBP/USD is clearly in a strong uptrend on the weekly chart, we’re seeing the familiar pattern of a market stalling just ahead of a milestone level—in this case, the 2020 high. Prices are extended from the 10- and 20-week EMAs, and the general oscillation of the trend already suggests that GBP/AUD could be nearing a cycle high on this timeframe. The weekly RSI (2) has formed a small bearish divergence, warning of potential mean reversion.
However, given that the weekly trend remains bullish, the RSI (14) is confirming the trend, and it has not yet reached overbought territory, I believe this market could eventually break above the 2020 high after the anticipated pullback.
For now, the bias is for some mean reversion on the weekly timeframe, potentially down to the 10-week SMA (2.0968), the 20-week SMA (2.0078), or the 2.000 handle.
GBP/AUD Technical Analysis (Daily Chart)
I’ll admit that it may not be a textbook ending diagonal or rising wedge pattern. But I generally find that the textbook ones are not often successful, and it does serve the purpose of showing a lack of momentum after a strong move higher. Naturally, this has resulted with a bearish divergence with the daily RSI (14).
- My bias remains bearish while prices remain beneath the cycle high
- Bears could seek to fade into minor rebounds towards the 2.06 area, or somewhere within yesterday’s
- The wedge suggest an initial downside target near the patterns base and December high, a break beneath which brings the 10 and 20-week SMAs and 2.0 handle into focus.
-- Written by Matt Simpson
Follow Matt on Twitter @cLeverEdge
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