GBP/AUD FUNDAMENTAL OUTLOOK
GBP/AUD gained ground in May, increasing +2.8% for the month overall. The increase in the cross was in part due to the RBA’s rate cut in May, the Conservative Party’s win in the UK’s parliamentary elections and mixed economic numbers out of both countries. The UK elections were the main event for Sterling in May, as the Conservative Party gained 28 seats bringing its total to 330 parliamentary seats and giving David Cameron another term as Prime Minister. UK economic numbers in May showed improvements in the housing sector, Manufacturing Production and Retail Sales. On the negative side was CPI, which showed a negative -0.1% y/y versus an expected flat reading. Also, UK Claimant Count Change showed a decrease of -12.6K compared to an expected decline of -20.5K with the previous number downwardly revised from -20.7 to -16.7.
The BOE left its benchmark Official Bank Rate and the Asset Purchase Facility unchanged at 0.50% and 375B respectively at their latest meeting on June 4th. In the MPC Meeting Minutes for May, the BOE stated that, “For two members, the immediate policy decision remained finely balanced between voting to hold or raise Bank Rate. While there was a range of views over the most likely future path for Bank Rate, all members agreed that it was more likely than not that Bank Rate would rise over the three-year forecast period.”
Australian economic data was also mixed in May. The highlight for the month was Building Approvals and Home Loans both printing significantly better than the consensus. Nevertheless, employment numbers and the Trade Balance both came out lower than expected. The RBA left the Cash Rate at 2.0% at their latest meeting on June 2nd after cutting the rate 25 bps last month. In his Statement on Monetary Policy, Governor Glenn Stevens noted that, “The Australian dollar has declined noticeably against a rising US dollar over the past year, though less so against a basket of currencies. Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.”
Traders will be attentive to Australian employment data on the 11th, the RBA’s Monetary Policy Meeting Minutes on the 16th, UK employment numbers and the MPC Meeting Minutes on the 17th for further indications on the direction of the cross. Due to weaker Australian economic numbers and improving conditions in the UK, the outlook for the cross is neutral in the near term and positive in the medium and long terms.
|ECONOMIC CALENDAR Major Releases|
5th OPEC Meetings
GBP/AUD TECHNICAL OUTLOOK
GBP/AUD has been rising in an ascending wedge pattern from the 1.7215 low it based at in September of last year. The cross made another push higher within this pattern in May, rising to the 2.0057 level on May 27th which bested the previous 2.0029 high it attained on February 11th. This medium term rally has consisted of a series of overlapping waves that points to it being an upwards correction of the longer term decline that preceded it.
That longer term decline in GBP/AUD ran from the October 2008 peak of 2.6695 down to the 1.4381 low seen in March of 2013. As the decline began losing momentum, it formed a descending wedge pattern with strong resistance seen in the 1.6185 to 1.6491 region. That area finally gave way in May of 2013 after GBP/AUD began its correction higher. The cross then bested the initial 23.6% Fibo level at 1.7287 and the 1.9085 38.2% Fibo level of its long term 2.6695 to 1.4381 drop, with the next target at the 50% Fibo level of 2.0538 as the rising wedge pattern unfolds. This wedge’s lower support line is drawn through the key 1.4410 and 1.7215 reversal lows and is currently at the 1.8740 level, while its upper resistance now at the 2.0283 level is drawn through the peaks at 1.9186 and 2.0029.
GBP/AUD remained above its rising 200-day Moving Average in May, which now reads at the 1.8931 level to support a bullish medium term outlook. Also, GBP/AUD’s 14-day RSI rose along with the cross in May. It now reads in upper neutral territory at 61.28, which could mildly impede further upside moves.
Overall, the near and medium term outlooks for GBP/AUD are correctively bullish within an ascending wedge pattern as the cross is gradually pushing through the Fibonacci retracement levels of its long term drop 2.6695 to 1.4381. The current Fibonacci retracement target for GBP/AUD is at the 50% level of 2.0538, which the cross seems to be gradually making progress toward while remaining above the 38.2% Fibo level of 1.9085.
|MAJOR LEVELS||Current level 1.9996|
Contact Te’a Truong at OzForex on +61 2 8667 8062 or email tea.truong [@] ozforex.com.au or REGISTER HERE