False Breakout or Bearish Continuation? Key Test for GBP/AUD
20 August 2024
I’d like to highlight an intriguing setup in the British Pound to Australian Dollar (GBP/AUD) pair. Since August 6th, the price has been trading within a rectangle, indicating a sideways trend, which is clearly marked in orange on the chart. Initially, the price tested the lower boundary of the rectangle more frequently, but towards the end, it began testing the upper boundary. On Monday, we saw a decisive move as the price broke below the lower line of this rectangle and continued to move downward.
As we start Tuesday, the price is now retesting this broken support as a new resistance level, and this will be crucial in determining the next move. If the price stays below the lower line of the rectangle, it would confirm the breakout and serve as a solid sell signal. Conversely, if the price manages to climb back inside the rectangle and subsequently break above the red downtrend line, it would indicate a false breakout. As traders know, false breakouts often lead to strong moves in the opposite direction—in this case, a potential long signal.
The key here is to watch how the price interacts with the lower line of the rectangle. A clear rejection at this level would support a bearish outlook, while a successful recovery back into the rectangle could trigger a bullish reversal.