Australian Dollar Losing Momentum Against the Pound, Aussie Inflation Data Ahead
Pound Sterling bulls will look to build on a rare weekly advance against the Australian Dollar over coming days as we ask whether GBP/AUD finally found a bottom from where it can recover?
GBP/AUD is seen trading at 1.6019 at the time of writing, within touching distance of the previous week's close at 1.6073.
It had opened last week at 1.5920 confirming a weekly gain that brings to an end a five week run of weekly declines; this is the first necessary signal required to suggest downside momentum is fading.
A rich variety of signals are indicating a potentially bullish reversal is on the horizon for GBP/AUD.
The spike down during the flash-crash formed a very long bar which is normally indicative of exhaustion and the termination of the downtrend.
The exhaustion bar formed a ‘hammer’ candlestick pattern which is bullish and increases the probability of a reversal.
The MACD momentum indicator in the bottom pane is crossing its signal line which is an indication to traders to close bearish positions.
The daily chart has formed two bullish reversal candlestick patterns within close proximity which reinforce their individual bullishness.
These are a Doji Star Bullish and Bullish Engulfing pattern.
The lower channel line of the possible broadening formation is resisting more upside, however, and we should first want to see a clear break above that, confirmed by a break above 1.6160 which would probably then run up to the next strata of resistance at 1.6242.
Latest Pound / Australian Dollar Exchange Rates
  | Live: 2.0112▼ -0.24%12 Month Best:2.1645 |
*Your Bank's Retail Rate
| 1.9428 - 1.9509 |
**Independent Specialist | 1.9831 - 1.9911 Find out why this is a better rate |
* Bank rates according to latest IMTI data.
** RationalFX dealing desk quotation.
The Pound has certainly been the main driver behind moves in GBP/AUD of late amidst suggestions that Sterling has finally absorbed a hard-Brexit premium is supportive - in short, negative Brexit headlines are not delivering the same punch as they once did.
If anything, risks are growing that hints at a softer-Brexit will have an outsized and positive risk to the UK currency.
“A fast and imminent continuation of the bearish trend at this stage is unlikely because a lot of UK bearishness is already priced in the exchange rate,” says Olivier Korber at Societe Generale.
We have heard senior government officials take a more balanced approach in their rhetoric concerning impending negotiations with a consistent theme being that access to the EU's single market remains a high priority.
In short, what markets want to hear is that at the end of it all UK-based companies will still have unfettered access to the EU's single market.
Achieving this will of course involve tough negotiations but because FX markets essentially price themselves months ahead of the final outcome events at the start of the journey really do matter.
With Sterling remaining sensitive to headlines keep an eye out for the High Court's ruling on whether Parliament should have a say in triggering Article 50 - while the outcome is unlikely to shift the course of Brexit it could be just the excuse traders need to press the buy and sell buttons.
If the Court rules in favour of the claimants Sterling could rally.
From the Aussie’s perspective, the currency is unlikely to trade much higher or lower until the release of CPI data on Wednesday.
The new governor of the Reserve Bank of Australia (RBA) dismissed the idea of further stimulus or rate cuts at his speech to the Aussie parliament, however, a lower-than-expected CPI reading could well increase the implied probability of an early 2017 rate cut to 30-25%, and weaken the Aussie in the process.
Inflation Data Looms Large for the Australian Dollar
The main release for the Australian Dollar is inflation data, which is expected to show a 0.5% rise on Wednesday, October 26.
"Markets will be closely watching this week's Australian 3Q CPI data (Wed) given the weight attached to inflation in the RBA's policy reaction function. With a fairly low probability of near-term easing priced in, any data miss may inflict a wave of dovish pressure at the front-end of the AUD rate curve," says Viraj Patel at ING in London.
Contrary to its peers, the latest CFTC data showed a solid build in spec long AUD contracts meaning that the currency is also vulnerable to a positioning adjustment.
"We look for a breach of 0.7550/60 as confirmation of a near-term bearish move down towards 0.7450," says Patel with regards to the headline AUD/USD.
Weakness here could well aid GBP/AUD higher.
Data for the Pound
As for the Pound, the most significant release in the week ahead is Thursday's Q3 GDP, which is forecast to come out at 0.3% qoq in the third quarter, and to show a 2.1% rise year-on -year.
Despite Brexit uncertainty, UK data remains robust with last week's retail sales data being particularly encouraging for the services-lead economy.
We believe however that data will play second-fiddle to news headlines concerning Brexit and which way the government is swinging on the bard-versus-soft Brexit scale.
