GBPAUD Sinks
It’s been another dramatic week for financial markets. As the Russian invasion of Ukraine continues and fighting intensifies, we’ve seen plenty of key moves across the board. In the FX space in particular this week, the biggest move and the one which is capturing the most attention from traders Is the more than 3% cascade in GBPAUD. The pair has fallen over 500 pips this week alone, now down around 1000 pips from the YTD highs. So, let’s take a look at what caused the move and, as always, if you caught it? Well done! If not? There’s always next week!
What Caused the Move?
Optimistic RBA Outlook
Firstly, the hawkish tone of the March RBA meeting this week has helped lift sentiment in the Aussie. While the bank didn’t adjust policy, the outlook was decidedly upbeat. The RBA noted that inflation has picked up faster than it expected and looks likely to continue picking up in the near term. While the bank reiterated its commitment to remaining patient and holding rates steady until inflation is sitting sustainably in the 2% - 3% band, the market appears to be pricing in upside risks, suggesting the view that the RBA will be forced to lift rates ahead of projections. The war in Ukraine and the upward pressure on energy prices is certainly creating big upside risks for inflation globally, with the RBA citing the crisis in Ukraine as a major risk factor in its outlook.
Ukraine Impact on UK
On the other hand, sentiment towards GBP has turned sour this week. GBP has come under pressure as investors mull over the uncertainty stemming from the crisis in Ukraine. The economic fall-out from the situation, as well as the murky fear of any UK military involvement if the violence develops beyond Ukraine, mean that GBP has fallen out of favour, for now. The spike in energy prices is expected to further disrupt the UK economy, creating a difficult situation for the BOE which is trying to balance the need for tightening with its impact on consumers, who are already being squeezed.
Technical Views
GBPAUD
Th breakdown below the rising trend line in GBPAUD has seen the pair cascading lower, breaking through several key levels. Price is now testing below the big 1.8132 level. With both MACD and RSI firmly bearish, while below here, the focus is on a test of the 1.7825 level next. If bulls can reclaim the level and develop a base, we might seem some corrective action building towards 1.8316 – 1.8438.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.