A roller-coaster of the week for the GBP/AUD exchange rate sees us turning from negative to positive from a technical forecasting perspective.

We wrote ahead of the week that Sterling was tipped to go lower against the Aussie and indeed there was a gap down on Monday, but this was followed closely by the strong move higher on Tuesday.

The move bears all the hallmarks of a significant reversal.

We see a likely extension of the new trend higher from here, with a move above the 1.6434 highs extending to a target at the underside of the old trendline at 1.6620.

The pair has paused in its raging bull higher and pulled back on Wednesday but it has found support at the S3 monthly pivot situated at 1.6319.

The exchange rate will find it difficult breaking below the pivot, and may well use the level as support for a recovery higher.

Aussie Labour Market Momentum Slows

There was reasonable jobs growth (including in full-time jobs) but another tick higher in the unemployment rate, to 5.8%.

"There has clearly been a slowdown of momentum in the labour market, although the unemployment rate remains around 5¾% and we continue to look for the unemployment rate to slowly trend lower," says Jo Masters at ANZ Research.

After a period of negative full-time jobs growth, full-time employment appears to be on the rise, up 9.3k in December and 95k in the last three months of 2016.

The labour market has lost some momentum, though, with employment growth slowing to 0.8% y/y in December, compared with 2.6% y/y a year ago.

The unemployment rate rose to 5.8% in December, up from a recent low of 5.6% in October.

"Today’s data are unlikely to unnerve the RBA with unemployment still around 5¾%. There has undoubtedly been some slowing in momentum in the labour market, but we continue to expect employment growth to be strong enough to underpin a slow downward trend in the unemployment rate," says Masters.

Employment therefore should not worry the Australian Dollar going forward.

Strong UK Wage Data Supports the Pound, Politics Still in Charge

Data out on Wednesday, January 18 showed a higher than expected rise in average wages in the UK of 2.8% from 2.6% previously.

This is likely to help offset fears that rising inflation squeezing household budgets, and provide Carney and the Bank of England (BOE) with more amplitude to raise interest rates if necessary.

Higher rates could spark a more determined recovery in the Pound, so watch this space.

However, it is politics that remain crucial for the UK currency.

The Pound strengthened after Theresa May’s speech mentioned the involvement of Parliament in the process of Brexit.

Nevertheless, despite this concession, there were also signs in her speech that her stance had hardened and that ‘Brexit would mean Brexit’ without retaining “bits of the EU”.

Her inference was that the UK will completely sever all ties with the EU and then try to negotiate a free trade deal.

This news also supported Sterling, as it finally provided some clarity on the outlook.

Now businesses can start to plan.

We reckon that the next threats to Sterling on this front will be when the actual details and tone of negotiations become known.

We are a few months from this yet and we suspect the Pound could rally in the vacuum.