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The Pound-to-Australian Dollar, Tech Forecast, News and Events in Over the Next Five Days

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The main release in Australia is retail sales as analysts attempt to evaluate changing economic conditions, whilst the Pound sees the release of trade data and growth estimates - and charts show a market propensity for Aussie strength.

The Pound-to-Australian Dollar exchange rate has broken down out of its rising channel and has started moving lower - we expect it to continue.

According to technical analysis, the method for measuring how far price will move following a  breakout from a channel is to measure the height of the channel and extrapolate it lower from the point of the break.

We have illustrated this on the chart below labeling the height of the channel 'a' and the expected follow-through following the break 'b'.

Although this takes the exchange rate down to a target at 1.6900 we have adjusted our target slightly higher to 1.7000 because that is just above the 200-day moving average (MA) at 1.6973.

Large moving averages such as the 200-day provide dynamic support where down- trending markets will often stall, or even bounce.

Traders often attempt to profit from the expected bounce by buying the currency at the level of the moving average and this tends to magnify the effect. 

A break below the 1.7213 lows would provide confirmation of more downside to the 1.7000 target.

The MACD has dipped below the zero-line which is the signal the trend has changed and adds weight to the bearish forecast.

Data and Events for the Australian Dollar

The main data release for the Australian Dollar in the coming week is retail sales on Thursday, January 11, at 00.30 GMT.

Retail sales in November are forecast to rise by 0.4% compared to 0.5% in October.

"Consumers ended 2017 on a buoyant note, so we look for a small uptick in Nov and a more substantial increase in Dec." Says Canadian investment bank TD Securities.

The data will be a useful barometer with which to gauge the performance of the Australian economy after its attempt at a less commodity based re-invention, says BK Asset Management, Managing Director, Kathy Lien.

"Unlike other currencies, the outlook for the Australian dollar in 2018 is less promising. China is widely expected to experience slower growth this year and while Australia has done a good job of rotating from a mining to a non-mining based economy, sluggish wage growth is a persistent problem.  This week's retail sales report could shine a light on this issue as the sales component of the PSI report shows weaker demand."

Data and Events for the Pound

The week kicks off with the extremely timely, December British Retail Consortium (BRC) Retail Sales figures out at 00.01 GMT on Tuesday 9, with analysts keen to gauge whether the economic slowdown is worsening or not.

The big day for the Pound, however, is Wednesday, December 10, when Industrial and Manufacturing Production data for November is out, as well as the Trade Balance and an estimate of GDP.

Industrial Production is forecast to rise 0.4% from 0.0% in October, and Manufacturing production by 0.3% from 0.1% previously; although the data is important, neither of these sectors is very big anymore so only large unexpected shifts are likely to move the Pound.

The trade deficit is forecast to widen in November to -11.0bn from -10.78bn previously, and if it is even wider than expected, then the Pound will weaken as it reflects net demand for the currency from buyers of UK exports.

Finally, The National Institute of Economic and Social Research (NIESR) GDP estimate for the last three months, released at 13.00 GMT on Wednesday, is expected to come out at 0.5%.

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