AUD/GBP Counts Down to Lift-Off
AUD/GBP is on the verge of a bullish breakout that could propel the Australian dollar much higher against the battered and bruised British Pound.
The Aussie to pound exchange rate is doing business just short of the four-year high recorded earlier in the month. This year alone, the pound has slumped more than 8 percent against its Antipodean counterpart. Unfortunately for the many Brits that send money to Australia, the pound’s demise may still be in its infancy.
On Tuesday Citibank released a worrisome report forecasting UK inflation could hit a staggering 18.6 percent next year. The bank predicts surging energy costs will drive consumer prices to a level last seen in the 1970s.
Stagflation crippled the UK economy in the late 1970’s, causing a cost-of-living crisis and a prolonged recession. With this in mind, the Bank of England (BOE) faces some tough decisions down the road.
Should the central bank continue to raise rates aggressively, it will raise the borrowing costs for consumers at a time they face the highest energy costs on record. On the other hand, doing nothing could continue to weaken the pound. Which in turn, raises the costs of oil and gas priced in different currencies.
It’s unclear how the BOE will navigate through the economic storm without crashing the UK economy. What is clear is that markets don’t respond well to uncertainty. With this in mind, the pound could soon freefall.
Aussie to Sterling Forecast
AUD/GBP is above the 50-Day Moving Average (DMA) at 0.5722 (green) and the 100-DMA at 0.5701 (blue), both of which provide support.
Above the market, a clear rising trend line at 0.5875 offers technical resistance. In theory, a daily close above the trend constitutes a breakout. In this event, the Aussie’s rally could gather pace. How high it will go remains to be seen. Although the 2017 high of 0.6182 is possible.
On the other hand, failure to clear the trend could spark a reversal. In this scenario, the 50, and 100-DMA’s must hold for AUD/GBP to maintain its bullish momentum.
AUD/GBP Price Chart
