The British Pound starts the new week higher against the Australian Dollar, but technical studies warn of the potential for further losses.
The Pound-to-Australian Dollar is quoted at 1.6880 at the time of writing having oepned the week at 1.6863. The Pound is seen rising against most competitors as political risks in the UK appear to be fading with Theresa May looking secure in her job as Prime Minister following a tumultuous week of political intrigue.
An attempted rebellion by Conservative Party lawmakers at the end of the previous week sent the Pound notably lower against major competitors, but over the weekend it has become clear there remains little appetite to replace May at the helm.
The increased certainty this brings should help Sterling near-term.
Yet, we cannot ignore the negative developments playing out on the GBP/AUD's charts which advocate for further declines.
The exchange rate is seen moving between two important long-term trendlines ('A' and 'B').:
It touched the top one ('A'), on September 28 before rotating and moving down. Every day of last week the pair showed loses.
We expect the young downtrend to continue, with a break below the 1.6781 lows leading to a continuation down to a target at 1.6660 where a combination of the 200-day MA and the 50.0% Fibonacci line of the September rally are likely to present an obstacle to further weakness.
Moving averages are not just used to ascertain the long-term trend but are also dynamic levels of support and resistance in and of themselves, and as such prices tend to bounce off them, sometimes even completely reversing trend when they meet them.
Fibonacci retracements are levels derived from the previous move which have support and resistance properties.
They relate to key ratios from the work of a 13th century mathematician, Leonardo Fibonacci.
The most important are the 61.8% retracement which relates to the golden ratio and the 50.0% retracement or midpoint.
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Data and Events for the Australian Dollar
The key releases for the Australian Dollar in the week are as follows:
The week starts with NAB Business Confidence in September, released at 1.30 BST on Tuesday October 10, and forecast to improve to 6 from 5 in the previous month.
That is followed by Westpac Consumer Sentiment at 1.30 on Wednesday and Home Loans in August, released at 1.30 on Thursday and forecast to show a rise of 0.5% in August.
It is important for the Australian Dollar that data beats expectations as the currency has been weighed down by concerns of a slowing economy of late - the Aussie has struggled over the course of the past month, falling against all its competitors.
Politics Still in Focus for Sterling
Politics was the main driver of Sterling in the previous week and it will probably once again be the main driver in the week ahead.
Sterling lost ground as a result of Prime Minister May's leadership coming under criticism, and whilst there are no signs she will resign the flak has weakened her position.
Over the weekend we have noted that the Conservative Party has rallied around May and her position looks to be secure once more and as noted by Viraj Patel at ING Bank N.V. this might offer Sterling some upside.
The coming week is a key time for Brexit negotiations as it will be the last week of talks before the EU summit to determine whether sufficient progress has been made to move onto phase two.
The consensus expectation is that progress will not be judged sufficient to move on.
"Barring any surprising breakthroughs, the EU27 is almost certain to vote that insufficient progress has been made to move onto the 2nd stage of negotiations," said Canadian investment bank TD Securities.
The most important had data to be released is Manufacturing and Construction Output data for August at 9.30 BST on Tuesday, October 10.
TD Securities, again, think there is a substantial chance of a deeper decline than the markets are expecting.
They say that although Manufacturing rose in June for the first time in 2017 they expect the gains to be at least partially retraced in August due to a fall in car sales.
They are also skeptical about the Construction Output result for August, saying that despite their model indicating an uplift due to a delayed effect from strong mortgage and house price data before, more recent Construction PMI's point to a decline.
Other releases to keep an eye on in the coming week are the Royal Institute of Chartered Surveyors (RICS) house price monitor at 00.01 on October 12; the Trade Balance at 9.30 on Tuesday, October 10 and the British Retail Consortium's (BRC's) Retail Sales Monitor on Tuesday at 00.01.