The Pound to Australian Dollar has continued to fall in its established downtrend following a bout of strength for the Aussie from rising commodity prices and some weakness for the Pound due to uncertainty over Brexit.
The pair is in a concerted, short-term downtrend, which is forecast to extend, and a break below the current 1.6174 lows would probably lead to a continuation down to a next target at 1.6000.
The MACD momentum indicator is only mildly bearish so does not corroborate our bearish forecast, however, alone it is not enough to dissuade us from expecting more downside.
News and Events for the Australian Dollar
The rebound in the Aussie, hasn’t just been due to a rise in commodity prices but also a recovery in domestic data.
“All three of the commodity currencies, the Australian, New Zealand and Canadian Dollars ended the week higher than when they started,” said Kathy Lien of BK Asset Management.
“A large part of that had to do with a recovery in commodity prices and the sell-off in the US Dollar but domestic also played a role.
“For Australia labour data market conditions remain healthy with job growth rising in the month of July,” she added.
Average Hourly Earnings also increased, said Lien, and said that “political troubles” were unlikely to “outweigh” lack of demand for US Dollars, although it is not clear whether her view on Sterling-Aussie was also bullish (for the Aussie).
There are no major data releases for the currency in the week ahead.
News and Events for the Pound
The week starts off with Public Sector Net Borrowing in July, at 9.30 BST on Monday, which is forecast to show the British government borrowing 0.5bn more than it did in July 2016 when it borrowed 6.28bn less.
The Consortium of British Industry (CBI) Industrial Trends Survey for August is out at 11.00 on Tuesday, August 22, with forecasts of the ‘balance’ – of “yes” to “no” responses – expected to rise to 10, from 8 in the previous month.
Thursday is the main day for Sterling in the week ahead from a data perspective, and the second estimate for GDP in the second quarter, is probably the main release.
Q2 GDP rose by 1.7% according to the first estimate, and the second estimate is expected to show no-change from this; the Q1 estimate showed growth of 2.0%.
Mortgage Approvals are expected to show 40.2 thousand more approvals in July, according to data from the British Banking Association (BBA) out at 11.00 on Thursday. Some forecasters have stated they will rise to 40.9.
Mortgage approvals have formed a compelling triangle-shaped pattern when seen charted over recent years (see below).
According to research, triangles have a minimum of five component waves, and this pattern has formed fives waves already, labelled a-e, and as such could be complete.
The next move would be expected to be a breakout either higher or lower, however, what is highly probable is a period of high volatility in the not too distance future.
As we noted last month when making the same analysis of mortgage approvals, a reading of above 47,500 would indicate an upside breakout to a target of 55k whilst a reading below 37k would lead to a breakdown to a target at 30k.
Finally, Business Investment is a major release for the Pound, also out on Thursday, at 9.30 BST.
Markets will be following the release closely as Investment has been unexpectedly strong since the referendum when it was one of the things which was expected to be hit hardest, given companies need certainty before making investment commitments.
If Investment continues to remain robust that may well help the Pound.
Finally, towards the end of the week the main event for financial markets will be the Jackson Hole symposium in the US, where central bankers will be meeting to discuss monetary policies and the global economy, and where Bank of England governor Carney, may well contribute to the flow of commentary.