GBP/AUD traded higher yesterday, breaking above the key resistance (now turned into support) zone of 1.7945. The pair has been in a recovery mode since Tuesday, when it hit support near the crossroads of the 1.7645 level and the upside support line drawn from the low of the 3rd of December, while yesterday’s break above 1.7945 confirmed a forthcoming higher high on the 4-hour chart. Having all that in mind, we would expect this pair to continue drifting north for a while more.
If the bulls are strong enough to stay in charge, then we may see them aiming for the 1.8075 zone soon, marked by the high of the 4th of January. If that level fails to stop the rate from rising further, its break may set the stage for more upside extensions, perhaps towards the 1.8190 area, marked by an intraday high formed on the 2nd of January, ahead of the “flash crash” spike.
Taking a look at our short-term oscillators, we see that the RSI lies above 50, but points sideways, while the MACD, although above both its zero and trigger lines, shows signs of slowing down as well. These indicators still detect upside momentum but make us cautious of a possible setback before the next positive leg, perhaps for the rate to test again the 1.7880 support line.
In order to start examining the case for a deeper retreat, we would like to see a clear break below that support barrier. Such a dip could initially aim for the 1.7780 zone, the break of which may allow the rate to challenge once again the upside support line taken from the low of the 3rd of December. That said, given that the line would still be valid, we would refrain from calling a reversal to the downside. In order to do that, we would prefer to wait for a dip below 1.7645, a move which may confirm the violation of the aforementioned upside line.
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