GBP/AUD Price Forecast Q4 2020: Bouncing in a Triangle
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- Technical Analysis
- The price has left the 20 SMA behind since October
In the late 1990s and early 2000s, the GBP was quite overvalued in comparison to the AUD, but over time, the [[GBP/AUD]] exchange rate has moved lower, losing over half its value at some point and bottoming out at 1.43-44 in 2013-2014, after a decade-long downtrend. This represents a drop from 3.04 in 2011. Since then, buyers have come back to the scene, as the GBP/AUD makes higher lows, but on the other hand, the highs are getting lower as well, as can be seen in the monthly chart. This indicates uncertainty in the long run, but the moves are becoming less severe, with the price heading towards the tip of the triangle in GBP/AUD.
Current GBP/AUD Price: $
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Both the GBP and the AUD are quite volatile, but the GBP is taking the upper hand, especially since Brexit. However, as far back as the chart shows, the GBP/AUD has never lacked volatility. In fact, this is one of the most volatile forex pairs out there, together with the GBP/JPY and a handful of other pairs. What’s interesting in this pair, is the fact that while other pairs are driven by fundamentals, and technical indicators are used as trading levels, here the price follows the technical picture, namely the triangle and moving averages, and fundamentals only serve to move the price between the technical indicators. The Aussie benefited from the great expansion of the Chinese economy in the 2000s, while Brexit sent this pair down after 2016. At the moment, the coronavirus is driving the sentiment for this pair.
|GBP/AUD Forecast: Q4 2020||GBP/AUD Forecast: 1 Year||GBP/AUD Forecast: 3 Years|
|Price: 2.0 – $ 2.3
Price Drivers: Brexit, COVID-19 Measures in Australia, Risk Sentiment, Technicals
|Price: 1.70 – 1.75
Price Drivers: Post Brexit, Global Risk Sentiment, Post-US Elections, Global Economic Recovery
Price Drivers: EU-UK Trade Relations, Market Sentiment, Global Politics
GBP/AUD Price Prediction for the Next 5 Years
COVID-19 and China for the AUD
As mentioned above, Australia is a close trading partner of China, having benefited from the economic boom over there. Exports abroad, mainly to China, have helped the Australian Dollar since 2000, as the Chinese economy has been growing. The trade relations with China have been helping to improve the sentiment for the AUD again since March, as China began to leave the COVID-19 pandemic behind, while it was just starting for the rest of the world. But the trade war between the US and China, which, incidentally, is still on the go, is not very favorable for the Australian economy and the AUD. If Donald Trump wins the election in November, the trade war is expected to continue.
By the way, Australia was one of the countries least affected by the coronavirus, and it was not affected by lockdowns initially. That was positive for the AUD, and as a result, the Aussie has turned quite bullish since March, with the AUD/USD gaining around 19 cents until September. The GBP/AUD lost around 25 cents during this time. But then the restrictions were implemented, and the Aussie began showing signs of weakness, hence the bounce-off from the bottom line of the triangle in September, as we will explain in the technical analysis section below.
Brexit and COVID-19 in the UK
In Britain, the coronavirus situation doesn’t seem very promising for businesses who want to make plans for the future. When the coronavirus began spreading in the UK, Boris Johnson refused the lockdowns at first, but he subsequently began to support them after falling victim to the virus himself. The UK saw some severe lockdowns from March to May, and the economy went through a major contraction, but then it bounced back after the reopening. Right now, the UK economy is keeping up the pace, and services haven’t fallen into contraction as they have elsewhere in Europe, which is a good sign, as the global economy is slowing down again. But, threats of continuous lockdowns harm the economic sentiment and the GBP. The Brexit situation doesn’t seem too positive either, as Britain edges closer to a no-trade-deal Brexit scenario, with both sides holding onto their positions, while the clock continues to tick. Even if they got together, they would need years to reach a trade deal, which is a very complicated matter. So, 2021 should be bearish for the GBP, but the technicals and fundamentals might not always agree, so let’s have a look at the technical picture.
Technical Analysis – Will the GBP/AUD Respect the Triangle?
The [[GBP/AUD]] was trading above $ 3 back in 2000, following a strong bullish trend that began in 1996. But the 2000s were a terrible decade for this forex pair, as the GBP lost considerable value against the AUD and across the board after the 2007 financial crisis. The 200 SMA (purple) provided some support by the middle of the decade, but after the 100 SMA (green) turned into resistance on the monthly chart, the pressure to the downside accumulated in this pair, and it crashed lower until 2013, falling to 1.44. This means that the GBP/AUD lost more than half its value during that decline, but it subsequently turned higher, and until late 2015, the pair surged.
The 100 SMA has turned into support now on the monthly chart
However, the 200 SMA has turned into resistance this time, rejecting this pair, which turned bearish after forming a few hammer candlesticks below that moving average, signaling a bearish reversal. Sellers pushed the price lower, but they couldn’t resume the larger bearish trend. The higher lows in 2016 killed hopes of a further bearish move. The price moved above $ 2 again early this year, but the coronavirus outbreak turned the AUD extremely bearish until September and the price turned back down. But the ascending trend line and the 50 and 100 SMAs were too much, causing the price to pull back up above the moving averages. This pin candlestick from September and the triangle itself indicate a bullish reversal now, and it is very likely that the GBP/AUD will bounce to the top of the triangle at around $ 2 until the end of 2020. But then, the price will probably reverse down and break the triangle to the downside, as the UK heads out of the EU with no trade deal.