GBP/AUD Head and Shoulders Forming

Downbeat economic reports from the U.K. seem to be boosting BOE rate cut hopes, possibly leading to a reversal from this pair’s climb.

GBP/AUD Trade Idea

A head and shoulders pattern has formed on the pair’s 4-hour time frame, but price has yet to break below the neckline support to confirm that a reversal is due.

Stochastic is already on the move down to indicate that sellers have the upper hand, and a break below the 1.8800 area could be enough to signal that a selloff of the same height as the formation might follow.

GBP/AUD 4-hour Forex Chart
GBP/AUD 4-hour Forex Chart

Last week, the U.K. economy printed weaker than expected inflation figures, with the headline reading falling from 1.5% to 1.3% and the core reading dropping from 1.7% to 1.4%.  Retail sales also disappointed with a 0.4% slump in December versus the projected 0.5% uptick and a downgrade for the previous month.

This week, the jobs figures are up for release and another round of downbeat figures could continue to support calls for further easing. Recall that a couple of MPC members already voted to cut interest rates in the previous meeting.

Meanwhile, Australia also has its jobs figures lined up and a slower increase in hiring is expected for December. Still, it seems that risk-taking could keep the higher-yielding Aussie supported now that a handful of geopolitical tensions have faded.

I’m looking to short at the 1.8775 level, with a stop of 150 pips that’s slightly wider than the pair’s average daily volatility. That’d be enough to put the stop loss above the key 1.9000 barrier as well.

GBP/AUD Volatility from MarketMilk
GBP/AUD Volatility from MarketMilk

As for my target, I’m hoping to catch around 800 pips or the same height as the reversal pattern. What do you guys think?

By Happy Pip / babypips

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