The GBPAUD pair has been moving in a flat since the end of March, with the upper boundary at 1.78 and the lower boundary at 1.73. Now the price has reached the upper boundary, from which a bounce down may happen again. Or will the pound have arguments to continue rising against the Australian dollar?
Over the last 2 weeks, a lot of statistical data has been published on the British economy state. And it is steadily moving in a downward direction:
1) quarter-on-quarter GDP growth slowed to 0.2% (and month-on-month GDP is showing a decrease second time in a row).
2) inflation has reached new maximums, it is already 9.1%, and it is expected to be over 11% by the Fall.
3) key rate has been raised again, this time to 1.25%. And that is clearly not the limit.
There are 2 opposing trends: the slowing UK economy is playing in favor of the pound's decrease, while rising rates are playing in favor of the pound's increase. In the nearest future, the Bank of England will probably have to make a final choice: to put all its forces in fighting against the record inflation, sacrificing economic growth; or to stop monetary policy tightening, supporting the economy, but allowing high rates of price increases and the national currency weakening.
The Reserve Bank of Australia does not face such a dilemma yet: the economy has reduced the growth rate, but not as significantly as the British economy, and the key rate rise (2 increases totaling at 0.85%) has just begun. The potential for the further rate increase here is much higher: another 0.5% rise is expected at the nearest meeting on July 5, and many financial market participants expect the growing probability of an even more aggressive move to 0.75% at meetings in July, August and September.
All of this indicates that there are no signals for a significant growth of GBPAUD in the nearest perspective. The technical factor is also on the decreasing side: the blue line of the Stochastic indicator reached the overbought zone, rebounded and crossed the red line from up to down.
The following trading strategy option can be suggested:
Sell GBPAUD at the current price. Take profit 1 – 1,75. Take profit 2 – 1,73. Stop loss – 1,785.
Also, traders may use Trailing stop instead of a fixed Stop loss at their convenience.