GBP/AUD: Can The Sell-Off Continue?

GBP/AUD broke critical weekly support of 1.6800 and is currently under continued selling pressure. The RBA stance on interest rate remained unchanged which helped pave the way for persistent AUD strength. In addition, recent overall buoyancy in commodity currencies against GBP high-beta crosses coupled with institutional outflow is driving the pair towards the weekly pivot area . In the contrary, GBP has also been under pressure against its major USD counterpart and is vulnerable to the downside risk if the tests of Daily TL support fails. Should GBP/USD give way the Daily support, we could see GBP/AUD decline accelerate. The distribution phase in $CABLE could interpret as a Mean Reversion in progress between GBP/USD:AUD/USD. As the GBP/AUD Buy Climax failed to create fresh demand on the weekly support area, the path of least resistance manifests to the sell side.

The latest technical theme also confirms the supportive data for our near-term bearish outlook. After a complex correction on s/t RSI divergence right above 1.6800, a fibonacci confluence support, the selling pressure has been resumed. The supply flow lower seems to be impulsive in nature and gives us further clarification to our Elliottwave road-map. Current decline is in wave 3 minor that can extend to 1.6530 area in the upcoming sessions. A corrective bounce likely to be seen from this support but downward pressure should remain intact as long as AUD stays neutral to positive . Should the recovery falter, the bounce should be deemed as mere wave 4 correction. In that case, we could see another pullback lower with a breach of 1.6500 support. We expect the pair to correct at least 38.2% of 1.4378-1.7480 Feb-Aug 2013 L-H range. An impulsive sell-off below 1.65 could drive the pair down to 1.6300/38.2% retracement of the monthly range as the final wave 5 . A minimum 38.2% pullback is also inline with Synthetic GBP/AUD mean-reversion hypothesis.

As commodity FX is becoming overbought, we could see a rebound on GBP/AUD from the near-term support areas. This may ease-off some pressure on the pair, but limited exposure to risk-factors could still support the AUD strength following any subsequent decline. We are currently short; however, from the Weekly TF, we view GBP/AUD decline as corrective and our favored scenario is to turn bullish once this near-term correction is complete.GBP/AUD 4 Hour" title="GBP/AUD 4 Hour" src="https://d1-invdn-com.akamaized.net/content/pic1cccae22acfa46b517bd815f138ce71b.png" height="910" width="1920">GBP/AUD Mean-Reversion" title="GBP/AUD Mean-Reversion" src="https://d1-invdn-com.akamaized.net/content/pic57f57dd5a23dcdff69ab0729dff2a631.png" height="910" width="1920">