For those who plan to visit some relatives in UK during the next few weeks, this may interest you. The following chart represents the evolution of the parity of the Australian Dollar against the British Pound (AUD/GBP).
After a long-term bearish trend between 1999 and late 2001 (inflection point, point A on the weekly chart), the currency pair started to rise back and has been riding a long-term bullish trend until now.
It climbed from a low of 0.33 (point A) to a recent high of 0.5081 (point B). However this recent high was posted on the long-term resistance level. A correction has already started and should drive the price lower. Indeed the resistance is the ascending oblique line that joins the higher highs posted since 2000 (red line). On weekly basis, the MACD has peaked at an extremely high level and has already started curving downward.
The currency pair has been quite choppy during the last 12 months. One year ago, the price action already failed to clear the long-term resistance line and posted a double-top (points C and D on the daily chart) that reversed the trend. From those points the Australian Dollar lost 25% of its value against the British Pound, falling from 0.4929 (point D) to a low of 0.3691 in last October (point E).
Then the price action has soared back from October 2008 to May 2009. Between points E and B, the Australian Dollar gained 37.7% against the British Pound. This move is backed by a support line (blue line), where the pair consolidated yesterday just above 0.49.
We expect a break below this intermediary support level as the technical indicators have turned clearly bearish. First, the MACD has posted a bearish divergence that typically detects trend completions and reversals. Indeed, it did not confirm the new highs posted by the price action on point B and it has also crossed below its moving average. The oscillators are all oriented downward and do not argue for a rebound.
What could be the price target? Well, the Fibonacci projections (plotted between extreme points E and B) show that the level of 0.44 could an objective. It corresponds to both the 50% retracement ratio and to a previous low posted in late January. It could be the next support level.
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