GBP/AUD up, up and away with eyes on 1.91 handle or a 23.6% retracement

• GBP/AUD at extremes, with the main focus, has been on Brexit.
• On a continuation,  the 1.91 handle coms  in to play for GBP/AUD.

Despite a disappointing Labour data from the UK overnight, GBP/AUD is currently trading much higher than yesterday’s levels in Asia, at 1.8945, a touch higher on the session so far having rallied hard overnight, with Brexit progress gaining positive traction  with a draft deal in sight.  

Firstly, the Reserve Bank of Australia’s minutes for  October left the door open to further easing. However, there was a lack of guidance on when the cash rate might be cut again – The minutes also mentioned arguments against cutting rates. A further deterioration in the economy and/or overseas between the US and China on the trade front could force the RBA’s hand yet again – “Markets are pricing 10bp of easing at the 5 Nov RBA meeting, and a terminal rate of 0.42% (RBA cash rate currently at 0.75%),” analysts at Westpac explained.  

Brexit, Brexit…Brexit

Meanwhile, the main focus has been on Brexit. After weeks of negotiations between the UK’s PM Boris Johnson, and the EU leaders, as well as plenty of circus acts within the UK’s Parliament, it would appear that there is a light at the end of the tunnel at this juncture, as we head into the  eleventh hour before the EU summit and Brexit date where an extension will need to be requested (which is likely going to be the case even if a deal is secured).  

“The Guardian cites sources claiming “that the negotiating teams have agreed in principle that there will be a customs border down the Irish Sea” and note that former PM May had rejected such an idea given the division it would create between Northern Ireland and the rest of the UK,” the analysts at Westpac explained, noting that GBP/USD jumped from 1.2630 to 1.2800 on the headlines, a five-month high and through the 200-day moving average. This has taken the cross, GBP/AUD, up to the highest levels since June 2016.  

GBP/AUD levels

The cross is well into bullish territories here, although the price is well into overbought territories and a pullback should be expected should fundamentals for the pound deteriorate. The 200-day moving average falls in line with the 50% retracement of the summer lows to YTD highs around 1.8250. However, that is some way off and the first downside correction target should be considered as being the 23.6% Fibo of the same range with a confluence of the overnight lows around 1.8620. On a continuation, however, the 1.91 handle coms  in to play.