Pound Sterling continues to suffer sustained selling pressure against the Australian Dollar after starting the year at 1.71 and subsequently falling to the current 1.62's.

Most of the declines happened in the week starting January 9 and we believe the Pound is poised to make further losses.

The GBP/AUD has now broken decisively below a key trendline, increasing the chances of further weakness.

When the exchange rate breaks below a trendline it usually falls roughly the same distance below the trendline as the length of the move before the trendline, according to technical analysis theory (see Pring Technical Analysis Explained).

On the chart below, we have marked the move prior to the trendline as ‘a’ and the expected move after as ‘c’.

This indicates that the next move is likely to take the exchange rate down to a target at 1.6000.

A break below the 1.6188 low would provide confirmation of such a continuation down to an eventual target at 1.6000.

The falling MACD is below the zero-line which indicates the pair is probably in a bearish trend, thus corroborating the generally bearish other technical evidence.

Data Events to Diarise for the Aussie

The main Australian releases in the week ahead will be the Employment Report out on Thursday, January 19, at 05.30 GMT.

After last month’s very strong release December’s data will have a hard act to follow, and so analysts are not expecting it to be as good.

Friday’s Chinese data dump is also expected to impact on the Australian Dollar, as China is its biggest export destination.

Chinese GDP, out at 02.00, is expected to show 6.7% growth year-on-year and 1.7% quarter-on-quarter in Q4.

Industrial Production, released at the same time, is forecast to show a 6.1% rise year-on-year in December.

Be Aware - the Pound Could be Rocked Monday by Latest Brexit Revelations

The big news for Sterling over the weekend were reports that Theresa May will make immigration a red line in upcoming Brexit negotiations.

This suggests the UK is to give up seeking access to the European single market.

Reports have suggested she will signal pulling out of the EU single market and customs union, although Downing Street described this as "speculation".

"All eyes on PM May as she outlines the government's Brexit strategy in a speech this week (Tue). Early indications suggest single market access is unlikely to be retained - a headline which could send GBP sharply lower," says Viraj Patel at ING in London.

In an interview with German Welt am Sonntag newspaper, Chancellor of the Exchequer Philip Hammond said he was "optimistic" a reciprocal deal on market access could be struck, and that he hoped the UK would "remain in the mainstream of European economic and social thinking".

"But if we are forced to be something different, then we will have to become something different," he said.

It seems the Government is prepared to exit the single market and we watch for some notable volatility in Sterling when markets open on Monday.

Data for the Pound

UK inflation data is released on Tuesday, January 17, at 9.30 (GMT).

CPI is expected to come out at 1.4% year-on-year in December, up from 1.2% in the previous year, and 0.3% month-on-month.

A higher-than-expected rise in CPI is likely to weigh on the Pound as it will be seen as negative for the economy.

Higher inflation will be interpreted as resulting from a weaker Pound rather than growth and will, therefore, be seen as putting pressure on already stretched household incomes.

Wednesday, Jan 18 at 9.30 sees the release of Employment Data, including the Unemployment Rate, Average Earnings and the Claimant Count.

Earnings are expected to rise 2.6% rise in November, and the Claimant Count by 5.0k.

The Unemployment Rate is expected to come out at 4.8%.

On Friday, January 20, Retail Sales are scheduled for release at 9.30, and expected to show a 0.2% rise month-on-month in December.

Year-on-year, they are expected to show 7.2% growth in December.