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Pound-to-Australian Dollar Rate's Week-Ahead Technical Forecasts + Events and Data to Watch

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The Pound maintains a bullish tenor against the Australian Dollar at the start of a new week that features the release of retail sales in Australia and a potential interest rate rise at the Bank of England. 

The Pound-to-Australian Dollar exchange rate is trading with an upside bias at the start of the new trading week being quoted at 1.7129; momentum lies with the Pound if we consider that at the start of last week the exchange rate opened at 1.6866.

The move higher has seen the pair break above a long-term trendline which is a very bullish sign on a price chart:

GBP AUD Oct29b

Although the last two days price-action has been bearish we expect the pair to resume its uptrend.

Another sign the uptrend will probably resume is the configuration of the last three day's trading activity (circled in the above chart).

Wednesday was a long green bullish day when buyers pushed the exchange rate above the trendline.

This was followed by a shorter red down day when the throwback began and then on Friday another shorter down day.

This configuration of a long bullish candle followed by two smaller bearish candles indicates a high probability - of about 66% - that the next day will be an up day.

Therefore, we see a higher chance Monday will end on an 'up'.

For confirmation of a continuation higher, however, we would ideally wish to see a break above the 1.7244 highs.

Such a move would then be expected to probably lead to a continuation higher to a target at 1.7400 as the bullish short-term uptrend resumes.

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Data and Events to Watch for the Australian Dollar

The Australian Dollar has struggled over recent weeks amidst lower-than-forecast data releases and falling global commodity prices.

These two issues will remain a central topic for the currency going forward.

The main release for the Australian Dollar in the coming week is Retail Sales for September, on Friday, November 3, at 00.30 GMT.

The previous month's result was a disappointing -0.6% but the market is looking for a rebound of 0.5%, previous weaknesses being put down to a jump in utility bills in July and August.

Yet the outlook for the quarter remains poor:

"Even with a small rebound in September, it is too late to save retail sales volumes, and most analysts look for no growth in the quarter," say economists at investment bank TD Securities in a preview of the event.

Tier-two releases include New Home Sales on Tuesday at 00.00, Private Sector Credit on the same day at 00.30 and AIG Manufacturing at 22.30.

Then on Thursday the Trade Balance and Building Approvals for September are released at 00.30.

Events and data for the Pound: BoE Centre Stage

The big event to watch in the week ahead is the Bank of England's Inflation Report and Monetary Policy Decision, due on Thursday, November 2. 

Money markets are currently pricing in a 90% chance that the Bank will raise interest rates - so the immediate risk to Sterling is if they don't raise rates. In such a scenario expect the Pound to plummet.

Such a move would be unlikely however as the Bank's Monetary Policy Committee know their reputation is at stake; in short, there will be few who take the words of Governor Mark Carney and his lieutenants seriously should he not follow through with a 0.25% rate rise.

An interest rate rise on its own would be neutral, as it is well signposted. What matters is communication regarding future policy moves - is there going to be a follow-up rate rise in 2018 or not? If yes, this would be positive for Sterling, if no, this would be bearish.

Financial markets are now pricing in a rise in 2018 which is more in line with Carney's view and so he may express satisfaction that they are correctly pricing probabilities.

"The picture is still cloudy enough for some UK rate-setters to question the need for immediate action. Nevertheless, we expect the Committee to move ahead with a 0.25% increase," says Lloyds Commercial Banking's Senior Economist Rhys Herbert, adding: 

"With regard to the Bank’s forward guidance, of most interest will be whether Carney reiterates his previous assertion that markets are underestimating the potential for interest rate rises."

Yet at the same time, Carney is still expected to emphasise that interest rate rises are likely to be "gradual".

The big debate for Sterling going forward is whether the interest rate is a once-and-done affair or the start of a new cycle.

Whichever side you fall on is likely to determine whether you are bullish, or bearish on Sterling.

“For investors, the key question is whether or not there will be further hikes next year. Market expectations are for at least one further 25bp hike next year. In contrast, we think the MPC will be making a mistake by hiking now, and that they will recognize this in the coming months,” says Daniel Vernazza, UK economist at UniCredit.

On the other side of the coin is the view that we are at the start of a new cycle of rate rises.

“It is not clear to us that UK growth is about to falter suddenly. There may be further Brexit negotiation uncertainty, but there is arguably a lot of it already. Instead, we prefer to trade with conviction the idea that this is not a policy mistake and that the BoE is on a hiking cycle,” says Jordan Rochester at Nomura.

As a result, Rochester is betting the Pound-to-Euro exchange rate will rise towards 1.15 near-term.

PMIs

Another major release for the Pound in the week ahead is the results of the October Purchasing Manager surveys for Manufacturing, Construction, and Services.

These are out at 9.30 on Wednesday 1, Thursday 2 and Friday 3 respectively.

Manufacturing it forecast to fall to 55.8 from 55.9 by the consensus of economists, although, some such as Lloyds's Herbert see an even lower result as likely due to the decline in the CBI Industrial Trends survey last week.

However, this is with the proviso that the Manufacturing PMI has been overall in an upbeat trend.

Lloyds Bank's Herbert is more constructive about Services PMI which he expects to come out at 54.0, however, the consensus expectation is for a fall to 53.2 from 53.6.

Finally, in the coming week Brexit Minister David Davis is to be questioned on the progress of negotiations on Tuesday at 16.05 (UK), and clearly how he answers is likely to impact the Pound given how hypersensitive the currency is to Brexit headlines.

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