Chart of the Week Bearish GBPAUD
Bearish GBPAUD - GBP: UK private sector output dropped in November: IHS Markit/CIPS released its first report on UK Flash Composite PMI on Friday. The Flash UK manufacturing PMI slipped to a two-month low of 48.3 in November (Oct: 49.6), pointing to worsening manufacturing conditions as a result of lower levels of output, new orders and employment and the sharpest fall in stocks purchases that reversed the stock building activities ahead of the 31 Oct Brexit deadline. The Flash Services PMI meanwhile fell back below 50 to 48.6 (Oct: 50.0) to suggest a modest reduction in services output, reflecting weaker demand due to delayed decision making in the face of political uncertainty, especially among large corporates. Economic data releases have had little impact on UK financial markets of late and that seems likely to continue to be the case with next week’s sparse calendar.Possibly of most interest will be the November readings for the GfK consumer confidence measure and the Lloyds Bank Business Barometer (both Fri). Their out turns were mixed last month as consumer confidence dropped to a joint low for the year, whereas business measures rose for the second consecutive month. Friday’s data will be watched for the impact on sentiment of the Brexit deal agreed with the EU and the announcement of the general election.
AUD: The case for tax cuts is not assisted by RBA growth forecasts pointing to a return to trend growth. Commentary around the international outlook continues to point to risks being tilted to the downside. However, a key reason justifying the decision not to move in November was around the “decline in pessimism” which had been signalled by global financial markets. A further reason to delay any more cuts is to await outcomes for the global economy, with the developments around the US–China trade conflict being front of mind.
From a technical and trading perspective, the GBPAUD is potentially carving out another significant double top pattern (note the momentum and sentiment divergence), this pattern completes at the equidistant swing objective 1.9015, persistent failure to close above this level adds conviction to the view of a corrective phase to develop. I will venture short through today’s low, with a protective stop above today’s high, targeting a move back to test bids towards 1.85.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!