The GBPAUD has rallied sharply over the past few trading weeks as visible in this D1 chart. This currency pair has shown signs of exhaustion, such as the capitulation spike last week which was followed by a sharp reversal as well as the last two daily candlestick formations which are nestled between twin resistance levels. The GBPAUD is currently trapped between horizontal resistance as well as its ascending support line which turned into resistance. We expect to see a further breakdown in this currency pair which should take it back down to support which is currently located with its ascending 50 DMA.
MACD has formed a negative divergence which is a bearish signal and points at a trend reversal. The histogram is expected to contract further below its moving average and all the way down to its centerline at which point it should perform a bearish crossover. RSI has formed a negative divergence of its own and just completed a breakdown form overbought territory.
We recommend a short position at 1.7000 with a potential second entry level at 1.7250. We also recommend a stop buy order at 1.7100 in order to hedge the initial short position and before committing to new short positions in this trade.
Traders who wish to exit this trade at a loss are advised to place their stop loss order at 1.7100. We will not use a stop loss order and execute this trade as recommended. Place your take profit target at 1.6200.
Here are the reasons why we call the GBPAUD currency pair lower
- The GBPAUD is currently trapped between twin resistance levels posed by its horizontal resistance level as well as its ascending support line turned resistance
- Price action witnessed a capitulation spike before reversing the move and the last two daily candlestick patterns formed a spinning bottom at resistance as well as an inverted hammer
- MACD has formed a negative divergence which is an indication for a pending trend reversal
- RSI has formed a negative divergence and completed a breakdown from overbought territory
- Profit taking in order to realize trading profits after a very strong rally
- New institutional short positions by swing traders at twin resistance levels