The GBP/AUD is developing interesting bearish momentum after recently completing a long-term bullish structure. Today’s analysis will provide a wave analysis update.
The GBP/AUD has now confirmed the completion of a bullish price structure which started back at the Oct 2016 low. Price has moved upwards via 3-wave swings into the Mar 28 2018 high. The entire move can be counted as a complex zigzag or a leading contracting diagonal. The wedge shape (see black trendlines), including overshoot of the upper trend line create a slight bias towards a leading diagonal for me. This would make the entire move into a wave A of a bigger corrective structure to the upside.
In any case, a significant bearish correction should be unfolding over the coming months, and we have seen the beginnings of it since the March high. Deep corrections are common after diagonals and it should therefore not surprise if we see price test the deep fib levels of the diagonal.
Price behavior since the march 28 high is still somewhat ambiguous, but there is no doubt that bearish pressure continues to build. The most bearish scenario would suggest a sequence of 1-2 waves (first chart above) within a bigger wave A. This would require immediate continuation to the downside with increasing momentum.
Alternatively, the structure could still morph into a leading diagonal as well (see black lines on second chart above), which would form Wave A. The downwards move between Apr 26 and May 4 looks more comfortable as a zigzag, which provides the first piece of validation for such a scenario. We should still see some more lower lows before the diagonal could be called complete, but price would remain trapped within the contracting black trend lines. This scenario would eventually result in a bullish break out of the wedge pattern, as wave B gets underway, before continuing downwards sharply during impulsive wave C.
Short positions at this time could be a valid trade choice, as there is room for price to fall towards 1.7740 before the wedge scenario might be complete. The alternative is to wait for more swings to unfold in order to provide greater clarity on the overall structure.
All the best along your trading journey