Trade of the Day: GBP/AUD 5th August 2014

UK Construction PMI

Yesterday, at GMT 8:30 a.m., the Markit released the month over month Construction PMI figure for the UK economy. The Construction PMI measures the level of a diffusion index, which derives from surveying purchasing managers in the UK’s construction sector. Analysts consider this to be a leading economic indicator because purchasing managers usually have the latest and relevant information about upcoming demand in their respective sectors.

For Last month, the UK’s Construction PMI figure came out at 62.4 against a forecast of 62.1. Although a reading above 50 indicates an expansion, it was below the previous month’s reading of 62.6. Overall, it was considered a Pound negative news by the market participants.

Australian Trade Balance

During the early hours of the day, at GMT 1:30 a.m., the Australian Bureau of Statistics released the monthly Trade Balance figure, which came out at -1.68 billion against an estimation of -2.0 billion. Since the Trade Balance measures the difference in value between all import and export, including physical goods and intangible services, a positive figure suggests that there were more exports compared to imports. More exports increase the demand for the Australian currency as foreigners would need to convert their currency into Australian dollar for before paying for their imports.

While this month’s Trade Balance was negative, the actual figure came out better than expected and it turned out to be a positive news for the Australian Dollar.

Trade Recommendation for the GBP/AUD

GBPAUD-5august-2014-analysis

Last week, the GBP/AUD had a sharp fall. Yesterday, the pair came back to the 61.8% Fibonacci retracement level and found a strong resistance around the 1.8100 level.

The contracting UK Construction PMI figure released on Monday had already made the market bearish about the GBP/AUD and today’s better than expected Australian Trade Balance confirmed the market sentiment. Overall, the fundamental economic data suggest a further decline in the GBP/AUD over the course of the next few days. However, traders should take caution if the price penetrates above the 1.8100 resistance level. That would suggest a further correction in the pair.

During the Japanese trading session today, the GBP/AUD has declined around 45 points. If the pair closes below the support level around 1.8030, it will certainly find additional bearish momentum. In that scenario, a PUT in the GBP/AUD is suggested.

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Asif Imtiaz

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