GBP/AUD – Upcoming RBA Meeting May Set Things Up For A Reversal

#OPINIONLEADER# #Signal#

 JUL 5, 2021

• BoE Governor Bailey warns on over-reacting
• RBA may take action in upcoming meeting
• Head and Shoulder pattern in GBP/AUD (D1)

Chart 1: GBP/AUD D1 chart

During a speech last Thursday, Bank of England Governor Andrew Bailey highlighted the importance of not over-reacting to the temporary strong growth and inflation in the UK at the moment so as to prevent the undermining of the ongoing recovery by a premature tightening of monetary policy. The market was disappointed with the comment as it expects the central bank to be looking into cutting back of quantitative easing (QE) soon. As a result, the British pound traded lower against the Australian dollar.

The upcoming Reserve Bank of Australia (RBA) monetary policy decision may move the Australian dollar. Specifically, it may very well strengthen it. With the strong recovery in the Australian economy, the central bank may decide to adopt an approach whereby frequent reviews of bond purchases can be carried out. This allows flexibility for adjustments when there are changes in the economic data or in the economy itself. (Refer to today’s Currency Call for my coverage on the RBA meeting for tomorrow.)

At the moment, a Head and Shoulder pattern is forming in progress in the daily chart. If the RBA decides to tone down on its QE, this may lead to the strengthening of the Australian dollar, presenting selling opportunities of GBP/AUD.

Head and Shoulder setup for GBP/AUD (D1)

Sell Stop order at 1.82200

Upcoming major news that may impact price movement of GBP/AUD

05 July – Reserve Bank of Australia monetary policy decision at 1230 (GMT+8)

05 July – Reserve Bank of Australia monetary policy press conference at 1230 (GMT+8)

08 July – Reserve Bank of Australia Governor Lowe speaking at 1030 (GMT+8)

09 July – Bank of England Governor Bailey speaking at 1800 (GMT+8)

14 July – UK CPI y/y data release at 1400 (GMT+8)

15 July – Australian employment data release at 0930 (GMT+8)

15 July – UK employment data release at 1400 (GMT+8)