The Australian dollar set off the new year rallying pretty much across the board. Even after some consolidation, the Australian dollar attempted to push the Great British pound to new lows but failed just below the 1.6000 support level. Since that failed new low that put in a higher low than the previous low, the $GBPAUD has rallied over 400 pips to trade at 2-month highs.
The move to 1.6400 has ran up against resistance at the 38.2% Fibonacci level. Swing buyers at the lows may seek to book profits here, especially ahead of the weekend. But it is unlikely that this $GBPAUD rally exhausts here. Even if the GBP drops on the Article 50 trigger event next week, bids are very likely to step in on that dip. Additionally, the Reserve Bank of Australia (RBA) is concerned with slowing wages in its economy. This concern prevents the RBA from increasing interest rates despite a still-strong housing market. A weak Australian dollar could continue to fuel this rally right into the 1.6700 resistance level. I think that is the line in the sand for the $GBPAUD. There are former highs at that level as well as the 61.8% Fibonacci level. While I expect profit-taking at 1.6700, a break higher will signal that a larger reversal is in play for the $GBPAUD.