The pound to Australian dollar conversion may be reaching a pause in its down-trend as all signals point to the move lower being overdone.
- There are signs that a temporary cessation in selling may be at hand.
- GBP/AUD has reached major support line in the form of the S1 monthly pivot at 1.8940.
The pound to Australian dollar exchange rate has fallen sharply from the 1.98s to the current 1.89s in only a matter of weeks.
Yet now two indicators are showing that the down-trend may be over-extended and some relief may be in store for the battered pound.
ADX, a measure of how 'trending' the market is, now reads at an extreme high of 50.50, and any reading over 50 signals the down-trend may be due a correction.
ADX is short for ‘Average Directional Index’ and measure volatility. When it goes over 50 research has shown it is often a sign the trend is overextended.
In another indication that the pound is oversold against the Australian dollar is the Relative Strength Index (RSI), viewed in the bottom pane, has fallen below 30.
A reading of 30 and below signals an instrument is oversold while anything at 70 and above signals overbought conditions.
Typically, an oversold signal indicates traders should not open any more short-positions.
Note how the exchange rate respected the RSI in the past, hitting troughs when the RSI fell below 30 and reversing the short-term trend when the RSI moved back above 30 again.
This time the RSI has signalled oversold, but has not yet moved back above 30, giving the signal to buy.
The only niggling worry is that the RSI has been at 30 for some time now, betraying the one problem with this signal which is it does not offer insights into the timing of the correction.
Nevertheless, the pound is oversold against the Aussie dollar, and this is worth remembering over coming days.
Will Support Hold?
There are signs that a temporary cessation in selling may be at hand.
GBP/AUD has reached major support line in the form of the S1 monthly pivot at 1.8940.
Monthly pivots are levels of support or resistance calculated using the previous months high, low, close and open.
Traders use them as levels where they predict increased demand or supply and where prices often pause, bounce or sometimes even reverse trend.
A break above the peak highs of 1.9236 would be required for more bullish confirmation, with an immediate target then at 1.9389.
A move above RSI 30 would also provide bullish confirmation.
The current dominant down-trend may also continue, as long as it manages to break clearly below the S1 pivot.
This would be signalled by a move below 1.8850, with a downside target from there at 1.8500.
PS: Copy signals, Trade and Earn on Forex4you - https://www.share4you.com/en/?affid=0fd9105
