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- GBP/AUD continues declining in lengthy correction

- Possibility it may have found a floor at the 50% level

- From here the odds increase of a bounce

The Pound-to-Australian Dollar exchange rate starts the new week at 1.8625 after falling half a percent in the week before.

The exchange rate is steadily correcting the prior rally, but the overall ‘look and feel’ of the charts suggests a bias towards an eventual bullish continuation once the correction ends.

The 4 hour chart - used to determine the short-term outlook, which includes the coming week - shows how the pair has been correcting steadily after peaking at the October 16 highs.

It has now reached the key 50% level, or midpoint of the previous rally, a level where there is a higher chance it could end and the uptrend resume.

A break above 1.8725 level would provide confirmation of a resumption of the uptrend to a target at 1.8800, calculated by taking the height of the channel (‘x’) and extrapolating it higher (‘y’).

Alternatively, a break below the 50% level at 1.8590 would confirm a continuation of the correction lower to potentially a 1.8500 target.

The fact the prior uptrend was so strong and the pull-back has been quite tame suggests the uptrend remains dominant, providing a mild bullish bias to the outlook.

The fact the RSI momentum study in the lower panel is giving a fairly high reading of 46 further suggests bullish potential, although it does not confirm it alone.

The daily chart shows a similar picture to the 4hr chart but with wider targets, since it is used to analyse the medium-term, which is the outlook over the next month.

On the daily chart, a breakout of the falling channel higher might indicate a move up to an eventual target at 1.9000, in the medium-term.

Alternatively, a continuation of the correction could lead to a move down all the way to the trendline at 1.8400. Such a move would be confirmed by a clear break below the 50% line at 1.8590.

The weekly chart shows the large rising channel which began at the 2017 lows.

The most recent move up within the channel has been quite steep and this suggests a fair chance it will eventually go even higher once the current pullback has finished.

There is a possibility the pair may first fall to the trendline at 1.8400 and then recover, rising back up to the upper channel line of the rising channel at circa 1.9200.

This seems a probable scenario given the current state of the charts.

The weekly chart is used to give us an idea of the longer-term outlook, which includes the next few months.

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GBP this Week: Polls and Important Data

The Pound has entered a decidedly downward trend against the Aussie Dollar of late, a clear reflection of the paralysis that has hit Sterling owing to ongoing political uncertainty.

We believe Sterling is reflecting the Conservative's 10 point lead over Labour in the polls, the assumption is that the advantage is enough to deliver a majority government that will swiftly deliver Brexit in the new year under the terms of the EU-UK Brexit deal struck in October. But 10 points is not enough to guarantee a majority in Parliament, and betting markets suggest bookies are seeing the odds of a Conservative majority at only 40%.

This suggests the prospect of the looming election breaking the deadlock on Brexit is not assured, and this will only provide further uncertainty to weigh on the Pound.

We would expect Sterling to break out of its recent ranges should polls suggest either the Conservative's lead has grown, or shrunk. The general rule of thumb is that should it shrink the Pound will come under pressure, should it grow then the Pound can find some upside momentum.

Away from politics, focus turns to key economic numbers, with third quarter GDP out on Monday, labour market numbers on Tuesday, inflation figures on Wednesday and retail sales on Friday

"We have a busy week ahead of us in terms of economic data releases, which will be interesting in the light of the dovish message sent by the Bank of England last week," says Aila Mihr, Senior Analyst at Danske Bank, adding:

"Given the weak PMIs, growth seems to remain sluggish but there might have been a positive contribution from stockpiling ahead of the previous 31 October Brexit deadline. On Tuesday, the jobs report for September is due out, which will be interesting, as the last couple of reports have shown decreasing employment. On Wednesday CPI inflation for October is due out and retail sales for October are out on Thursday."

Third quarter GDP is forecast to read at 0.4% when released at 09:30 GMT, an improvement on the previous quarter's -0.2% reading.

Tuesday's average earnings data (with bonus) is forecast to read at 3.8% when released at 09:30 GMT, unchanged on the previous month. A beat would be positive for Sterling, a miss would be negative.

The three-month-on-three-month employment change is forecast to read at -90K.

Wednesday's headline inflation rate is forecast to read at 1.6% year-on-year for October, down slightly on September's 1.7%.

We would expect any currency reaction to the above data to ultimately be short-lived as the market remains focussed on the General Election.

AUD: Wage Data Key

The focus for the Aussie Dollar this week will likely be third quarter wage data due Wednesday, and October jobs data to be released Thursday.

Markets are looking for the quarterly wage price index to read at 0.5% when released at 00:30 GMT on Wednesday, taking the annual rate to 2.3%.

Employment data is expected to show a 20K rise in employment when released at 00:30 GMT, but a slight rise in unemployment back to 5.3%.

If the data comes in below expectation, the market will likely raise bets that the Reserve Bank of Australia (RBA) will cut interest rates again, potentially as soon as December.

The RBA's cycle of interest rate cuts have meant the Aussie Dollar has endured losses against the likes of the U.S. Dollar and Pound during 2019; and further interest rate cuts will likely see this trend of weakness extend.

"In the absence of significant fiscal stimulus soon, pressure remains on the RBA for further easing if it is to achieve its mandate. As such, we continue to see the cash rate being cut to 0.5% in December and to 0.25% in February," says Shane Oliver, Head of Investment Strategy and Chief Economist at AMP Capital.

Oliver says the RBA might also contemplate introducing a quantitative easing programme, to further aid the economy.

"With bank interest margins under pressure as highlighted by Westpac and NAB results released in the last week this should come with quantitative easing measures designed to lower bank funding costs and increase the banks’ pass through of rate cuts to borrowers," says Oliver.

The general rule of thumb goes that when a central bank introduces quantitative easing - which is the printing of money to buy government and/or corporate bonds - the currency it issues weakens.

Therefore, poor data this week will likely add to the sense that the Australian Dollar's downtrend is not over.

Time to move your money? Get 3-5% more currency than your bank would offer by using the services of a specialist foreign exchange specialist. A payments provider can deliver you an exchange rate closer to the real market rate than your bank would, thereby saving you substantial quantities of currency. Find out more here.

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