Three Down Days in a Row on Pound to Australian Dollar Warn of Weakness to Come

 

If you are planning to purchase the Australian Dollar keep a close eye on GBP/AUD as dark omens are gathering - and you want to get the most from your pounds.

australian dollar generic 3

The GBP/AUD pair is showing three early-warning signs of weakness.

Wednesday's red down-day means the pair has completed three down-days in a row after Monday's peak.

This is a bearish sign according to Japanese candlesticks which were used in 17th century Japan to forecast movements in the market by rice traders.

Its appearance on GBP/AUD is the first early-warning sign that the pair may be about to fall. 

Commodities on the Rise

The second reason for expecting GBP/AUD to fall comes from a strengthening Aussie Dollar due to a rise in Commodity prices. 

Commodities have been appreciating of late due to increased demand from China, who, according to analysis from FX broker HiFX, are stockpiling.

China fears Trump’s trade tariffs which could see 45% added onto the cost of imported Chinese goods.

By stockpiling at currently low prices Chinese manufacturers hope to keep base costs low when the tariffs hit.

China buys a lot of Australia’s industrial metals including most of its Iron Ore, which is its single largest export.

The rise in the price of Iron Ore is a fundamental driver of the Aussie Dollar.

Aussie 'Unloved'

The rise in commodity prices over past months has already helped the Australian Dollar to strengthen by increasing aggregate demand but not as much as it should have, say analysts at Westpac Bank.

“The acknowledgment that higher commodity prices are being driven by both demand and supply is something that we think is underpriced by the market.

“Our fitted fair value models suggest that the A$ is cheap at the moment and we remain of the view that a push towards 0.7500/50 looks likely, but should remain capped by a strong US$ and concerns about Trump's 'tariff and trade" policies,” said Westpac’s FX Strategist Richard Rennie.

AUDUSDDec06fair

AUD/USD has fallen well below fair value according to Westpac.

The same can be said for NZD/AUD which at 0.95 lies well above its ‘fair value’ of 0.89 according to HiFX.

This may indicate the Aussie is undervalued against several currencies and therefore may appreciate to make up the ‘lost ground’.

NZDAUDDec07

 

NZD/AUD is well above fair value showing a combination of the AUD undervalued as well as the NZD overvalued.

The MACD

Pronounced ‘Mac-dee’ this is not a dish on the menu of your local fast-food outlet – rather an indicator of momentum featured in the lower pane of the chart below.

It is the third omen of more downside for GBP/AUD.

The MACD appears to be forming a curving high which looks at risk of falling.

The blue line, which is called the MACD line is close to crossing the red line, called the signal line.

Such a cross over would add confirmation to the other bearish signs.

Rising Channel

A break out to the downside of the rising channel would be necessary to confirm a stronger move lower.

Such a move would have to pierce below 1.6775 with a target at 1.6625 just above support at 1.6600.

Alternatively, a move higher – which cannot yet be discounted – would extend on a break above the 1.7165 highs, targeting 1.7300 thereafter.

GBPAUDDec07

 

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