Latest FX market analysis and trade views: Four reasons, why we turned short on GBPAUD.

First of all, as you can see recent price action in major currency pairs, there is a quite tight range recently. Not much of the volatility, which the best friend for any currency speculator. At the same time, cross-rates, like GBPAUD move in a more rapid way, giving more profits at the end of the day.

Next is about the fundamentals of British Pound. We continue hearing the same mantra from UK officials: Brexit, Brexit, Brexit… European financial companies have withdrawn GBP350Bn recently due to the UK leaving the Eurozone. Irish prime minister has expressed concerns about UK government uncertainty in a very simple question, like what is going to happen with the border between Ireland and United Kingdom. Bank of England Governor, mr.Carney reminds about the uncertain impact of Brexit for the economy every time he hosts press-conference. Even hawkish rhetoric of MPC does not help pund bulls to break through the recent range. As a result, the sterling has lost it’s usual attractiveness for currency traders. I remember the times, when GBPUSD used to move 2-3 hundred pips in a day, leading the volatility among majors. What do we see now? Tight range. Yes, We’ve seen a pick up in the momentum of GBPUSD last week, moving above 1.33 figure, but will it have a sustainable continuation? We have doubts about that.

Meantime, the second component of the cross-rate GBPAUD, the aussie (AUDUSD) shows signs of finding the bottom after the recent depreciation, failing to break below 0.75 figure and pulling back above 0.76 in past week. Among fundamentals, supporting the pair, we can observe prices of metals exported by Australian economy: iron, silver and gold. RBA Governor, mr. Lowe, had hawkish comments this past week, saying that the next rate move will be more likely up rather than down, despite concerns of low inflation and weaker consumption. Traders will watch Manufacturing PMI from Australia and China this coming week.

One more reason, why we decided to take profit of mid-term longs, is technical outlook. You can find our chart setup below. We’re obviously approaching strong resistance range and there should be enormous demand for the GBPAUD in order to break through this range in a sustainable way. So, we’re expecting the pullback and consider shorts.