Image © Adobe Images
The Pound is contained in a well-defined range that should hold, ahead of an eventual break higher.
An expected break higher is consistent with the broader uptrend in the Pound-to-Australian Dollar exchange rate (GBP/AUD) that is still intact, but a consolidative period must be allowed to mature before that move is triggered.
Technicals advocate for some relatively predictable price action in the coming days, with the nine-day exponential moving average (EMA) steering price action and holding court over the pair:
Above: GBP/AUD at daily intervals with the nine-day EMA indicator.
This technical indicator is currently at 2.0850 and is acting as a pivot, with selling and buying interest ultimately fading and reverting back to this level.
A look at the same chart shows the Relative Strength Index (RSI) (in the lower panel) is decidedly neutral and trending sideways around the 50 marker, confirming the market is looking for direction.
Selling interest builds at graphical resistance at ~2.0893 ahead of 2.0982. Support quickly builds at ~2.0755 ahead of 2.0689.
Although this price action might not be exciting for many watching GBP/AUD, it does offer some welcome predictability for those with imminent payment requirements as it tells us the risks of any major upside and downside moves is relatively limited near-term.
Budgeting should be relatively pain-free in this regard.
Panning out to a multi-week picture reveals the momentum remains with the 'bulls' and therefore risks are ultimately to the upside given that the longer-term uptrend in GBP/AUD remains intact:
Above: GBP/AUD at weekly intervals.
Having spiked to a new multi-year high at 2.1647 following the April 02 U.S. tariff announcements, the pair quickly gave up those gains amidst an AUD recovery as investors saw signs that the U.S. was ready to negotiate on what at first glance appeared to be incredibly restrictive tariffs.
The subsequent pullback is consistent with the unwinding of significantly overbought conditions in GBP/AUD, which were never likely to be sustained.
More recently, the Aussie has been sustained by the U.S. equity market recovery, which is itself a function of signs that U.S. President Donald Trump is having to tone down his ambitions on replacing the Chair of the Federal Reserve and on Chinese tariffs.
Last week, Trump said he would not "play tough" with China and that the current 145% tariff on goods would be "significantly reduced" once he made a deal with Chinese President Xi Jinping.
Yet, the AUD could not capitalise on the headlines to any meaningful degree because China has made it clear it is not willing to fold and accept any overtures from Trump.
In fact, Thursday saw the Australian Dollar soften against the Pound and other major currencies after Chinese authorities told the U.S. to abandon its trade tariffs, suggesting the trade war was set to rumble on. The week closed out with multiple denials that China is talking with the U.S. on the matter of tariffs and trade.
"It seems that Trump’s administration has been surprised that "China has not quickly called in”. This suggests that Trump’s team has completely misread Beijing’s strategy. President Xi has been preparing the nation for a struggle for several years. The Chinese society is rallying around the flag, and it is ready to stand up to the US," says Arthur Budaghyan, Chief China Strategist at BCA Research.
China's stance and the inevitable slowdown in the U.S. economy will keep investors on edge and ultimately limit GBP/AUD downside, while keeping the door open to an eventual trade towards 2025 highs at 2.16 in the coming months.
"The dollar has stabilised as President Trump has backtracked on key policy items lately, from Fed independence to trade, aided by max bearish USD sentiment and strong month-end rebalancing flows. The underlying issue, however, has not gone away," says a weekly FX note from Barclays.