Pound Faces Downward Pressure Against Aussie Dollar

The British pound is facing a test of support against the Australian dollar as bears take control. The pair had gapped higher on Monday but gave back those gains and now appears to be heading towards the 1.87 level, an area that has previously been supportive.

If this level is broken down through, the next target could be the 1.08 level. However, the overall attitude in the market seems negative, with the Bank of England likely to remain neutral and the Reserve Bank of Australia looking increasingly hawkish.

This has led to a repricing of the direction of both central banks, with interest rate differentials favoring bears in this market. Momentum is on their side as well, but some may try to pick up value at the 50-day EMA above, sitting just below the psychologically significant 1.90 level.

The Bank of England's lackluster attitude towards supporting the pound has led one analyst to suggest that the Australian dollar could break out to the downside. If this happens, the 1.86 level would become a major support level, and anything underneath it could unleash significant selling pressure.