Trade Analysis - Buy GBP/ AUD

The Australian economy was one the first major economies to come out of a recession. For the past 12 months, Australia has been reaping the fruits of the Chinese stimulus. The last unemployment figures blew away estimates (Australia added 35K jobs vs. 5K forecast). The UK on the other hand …not doing so well; On Feb 17th UK Job claimant count was released and in contrast to the story in Australia, the surprise was NOT pleasant. An additional 23,500 people in UK claimed unemployment benefits in February vs. a forecast of a drop of 10,000 claimants. Unemployment news highly impacts the perception of the health of any economy and little wonder the GBP / AUD pair languishes at multi year lows.


The GBP AUD chart below shows the relentless GBP selling against the Aussie Dollar over the past several months. You can also see that the pair sits on multi-year support between the 1.7175 and 1.7250 which presents a good risk/ reward trade. The spot price of GBP / AUD already reflects the divergence in economic performance of the two economies and interest rate expectations. Looking forward, UK CPI printed 3.50% (3.10% ex Food & Energy) in January (YOY) – beyond target. The hot CPI will begin to pressure the BOE to start thinking about wrestling inflation by raising interest rates. This will narrow the interest rate gap between the U.K and Australia.

It is important to note that the primary driver for this trade is technical. Weekly and daily charts show that the British Pound is thoroughly oversold against the Australian Dollar and we believe a short term correction is due (at the minimum).

Trade Plan:

Buy 1 lot @ market 1.7230

Target / Sell @ 1.7730 for a total  profit potential of + 500 pips @ $0.90 a pip = $450.00

Stop Order - 1.7090 (this is the risk on this trade  -160 pips, @ $0.90 a pip = $144.00 Risk)

Trade Tenure = 1 to 3 weeks

Trade Status = in progress

On a standard account (leveraged 1:100), 1 lot = $100,000 trade of GBP AUD @$0.90 per pip