GBPAUD Correction Setup (July 28, 2015)

The pair has recently found resistance at the 2.1400 major psychological mark and might retreat to the 2.1200 levels.

This potential correction area lines up with the 50% Fibonacci retracement level and the rising long-term trend line. This also coincides with the 100 SMA and 200 SMA, which are indicating that the uptrend is likely to continue.

Stochastic is on the move down, confirming that a correction from the recent rally is underway. RSI is also moving lower, suggesting that sellers are in control of price action at the moment. Once these indicators start showing oversold conditions, buyers could get back to action and allow the climb to resume.

Event risks for this setup include the release of the UK preliminary GDP reading today. This could show a growth of 0.7% for the second quarter, stronger than the previous 0.4% expansion. A higher than expected GDP reading could mean more gains for the pound, as this would confirm that the BOE might be able to hike rates early next year.

Recall that the BOE Inflation Report hearings were bullish for the pound, as Governor Carney said that they are moving closer to tightening monetary policy. However, the recent jobs report and retail sales figures turned out weaker than expected, leading some traders to doubt that a rate hike could be possible.

As for the Australian dollar, gold prices have been falling recently, which could mean lower revenues for the mining industry and a downturn in export activity. This could also set off another tumble in commodity prices, which would be bearish for the Aussie and negative for risk appetite.

By Kate Curtis from Trader's Way