GBPAUD Long-Term Ascending Channel (Feb 10, 2015)

Stochastic is moving down from the overbought area, indicating a potential buildup in selling pressure.

In that case, price could make its way down from the top of the channel until the bottom at the 1.8500-1.8700 levels. Weaker selling pressure could lead to a selloff until the mid-channel area of interest around 1.9200 only.

Event risks for this trade setup include the BOE Inflation Report mid-week, which is slated to shed more light on the central bank’s economic assessment and outlook. So far, UK officials seem confident that the downturn in inflation could translate to stronger consumer spending and economic growth, which has kept the pound afloat. However, a shift in bias could lead to a sharp decline for the pound.

As for the Australian dollar, the currency could find a strong directional catalyst from the upcoming jobs release. For the month of January, job losses of 4.7K are expected and this could bring the unemployment rate up from 6.1% to 6.2%. Traders are also likely to keep tabs on the participation rate, which might indicate improving confidence in the job market.

Stronger than expected headline jobs figures from Australia and upbeat underlying data could lead to significant gains for the Australian dollar since these would ease expectations of another RBA rate cut. Recall that the central bank recently decided to lower interest rates in order to spur economic activity and ward off weak inflation.

Weaker than expected results, however, could spark an upside break from the channel resistance and lead to more long-term gains for GBPAUD. Bear in mind though that this pair tends to be volatile so wide stops are recommended.

By Kate Curtis from Trader's Way