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GBPAUD Technical Analysis
GBPAUD has painted top Head-And-Shoulders (H&S) on the daily chart, which supports our prior strategy for AUDUSD. To recap, the PBOC devalued the Yuan to combat the weak economic figures. Although it is fairly risky to have such exposure to a single currency we will attempt to manage the risk between the two trades. As this is a daily entry we hope to be in a fair profit by the end of the week.
GBPAUD Daily Chart
Please click on the chart to enlarge:
We have entered many similar trades in the past based on such reversal patterns. You may see from the chart how the left-hand shoulder is being painted and the potential room for corrective weakness. The main concern with GBPAUD is the required stop loss order. As this is a rather violent cross it often demands a large stop. Rather than placing the stop above head that would be a fairly large stop we are attempting to combine the 4hr chart with the daily chart to reduce the market exposure. This must be done with great precision to ensure we will have the ability to absorb the intraday noise. It is a difficult task but we have successfully combined the 4hr chart and the daily chart multiple times in the past.
The immediate target for the correction would be the neckline at 2.0862. We are choosing to layer the take profit order at 2.0755. We should highlight there may be further selling in GBPAUD should the price break below the neckline but we prefer adopting a conservative stance. Similar to AUDUSD trading strategy the overnight data from China or the Greek vote on Wednesday may be the trigger for corrective weakness. It is also highly likely profit realization would occur that would in turn strengthen the Australian Dollar (AUD).
GBPAUD Trade Alert Details
GBPAUD short at market price (2.1329)
Take profit: 2.0755
Protective stop: 2.1519
Risk Ratio: 1 : 3 (approx.)
Estimated duration: 14 days
12/08/15 UPDATE: The PBOC acted again despite its remarks it will not devaluate the Yuan for a second time. Our AUDUSD long trade survived the market reaction but our short trade in GBPAUD triggered the protective stop loss order. Although it is possible to re-enter as we opted for a tighter stop we are not doing so and rely on AUDUSD. We will revise the market at the daily close and decide how to proceed.
12/08/15 UPDATE II: We are focusing on re-entering but in EURAUD. Please note the Euro Aussie 60min chart.
EURAUD 60min Chart
Please click on the chart to enlarge:
You may have noted the great resemblance to GBPAUD daily chart. The lower diagonal line represents the neckline of the top H&S. If EURAUD spikes higher following another intervention by the PBOC the market may be more accustomed to devaluation to the any uptick should be limited. EURAUD may re-test the upper resistance (1.5298) and trade slightly above.
If we were to enter at market price EURAUD did not break below the neckline at the time of this writing and we may experience a kick towards to nearest resistance (the right-hand shoulder), which is approximately +80 pips from current levels. If the PBOC will not act there is a fair possibility EURAUD will break below the neckline and affirm the trend reversal.
We prefer setting an entry order above the market price, preferably near the upper resistance. Although an entry order may be placed below the neckline EURAUD could initially spike lower before reversing higher. We are continuing to monitor the hourly chart and are likely to make an update near 00:45 GMT. If EURAUD breaks below the neckline ahead of the PBOC we will have to revise the market as this strategy will no longer be relevant.
EURAUD did not provide us with a short entry. If you pay close attention to GBPAUD daily chart you would note the spike (in the form of a shadow) triggered the protective stop loss order. It was our decision to opt for a tighter stop as risk management is above all. Our AUDUSD long trade was able to hold and we have realized profits over the trade.
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