The Brexit related comments made by the UK’s Prime Minister Theresa May and the statements of Philip Hammond, the Chancellor of the Exchequer, regarding quantitative easing pushed down the Pound to 1.57853 against the Aussie. The unexpected strength in the price of commodities also aided the fall of the GBPAUD pair. The UK’s economy, however, is faring much better than anticipated and a bounce back in the GBPAUD is expected soon, as explained below.
Olivier Korber, the analyst at Societe Generale is of the view that most of the Pound’s decline was politically inspired. Korber also opined that the currency’s decline is in the final stages as most of the negative impact of the Brexit outcome is already priced into the exchange rate, and the traders should start buying the dips.
On October 18, the UK’s Office for National Statistics reported a 1% y-o-y increase in consumer prices. The market anticipated a 0.9% growth in the consumer price index. Likewise, the unemployment claims have declined by 700 in October, compared to analysts’ expectation of a decrease by 3,400.
The preliminary GDP report released last Thursday showed that the UK’s economy grew by 0.5% in the quarter ended September. Considering the uncertainty created by Brexit, the analysts anticipated the UK’s economy to expand by only 0.3%.
On the contrary, the Australian Bureau of Statistics reported that the economy lost 9,800 jobs in September, compared to the analysts’ expectation of an addition of 15,200 jobs. The recent sharp rise in the price of iron ore, and a better than expected consumer price inflation reading failed to propel the Aussie further upwards against the Pound and other currencies. This indicates that the market perceives the Aussie to be overvalued. So, we forecast the GBPAUD pair to remain bullish in the weeks ahead.
Based on the above analysis, we believe that going long in the GBPAUD pair would prove beneficial to a Forex trader. The entry can be made at about 1.6010. Considering the volatility in the Pound related pairs in recent months, a stop-loss order should be compulsorily placed below 1.5900. The long position can be sold when the currency pair reaches the next resistance level of 1.6240.
To gain from the probable uptrend in the currency pair, a binary trader can look at the option of purchasing a one-touch call option. The expiry date of the call option should ideally fall in the last week of November. Furthermore, the chosen target level should not exceed 1.6240.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
