The Pound to Australian Dollar exchange rate (GBP/AUD) has found support at a major trendline at last week's 1.6250 lows from which is bounced temporarily at the end of last week.

The pair may consolidate on its gains in the coming week if UK political risks continue to ease as seems possible after the Brexit debate swung to the 'soft' end of the gauge over the weekend with the opposition announcing their shift to a softer stance.

Although the overall trend remains down, the major trendline and the bounce are bullish counter-trend signals which raise doubts about the sustainability of the downtrend.

Nevertheless, it is still too soon to say that the downtrend has reversed and a break below the 1.6250 lows would confirm a continuation down to the next target for the pair at 1.6000.

This is calculated using the technical principle that a break below a trendline - annotated 'b' on the chart below - will move a similar distance as the move immediately prior to the break, annotated 'a'.

Given 'a' is about 300 points long 'b' should be roughly the same, and since the break occurred at about 1.6200, it should lead to a downside projection to a target at 1.5900, however, we have adjusted our target higher to 1.6000 as it is a major round number and therefore likely to attract a lot of buying interest, and thus act as a support.

The MACD momentum indicator is not corroborating more downside as it did not form a lower low on Friday like the exchange rate.

MACD thus formed a bullish convergence, which goes against our bearish forecast but is not sufficient on its own to signal a reversal.

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Data and Events to Watch for the Aussie

There are no really major releases for the Australian Dollar in the next five days and so the general market appetite for risk assets, which the Aussie is one of, is likely to be the primary market mover.

"We expect risk appetite to remain the leading driver of AUD flows but Australia and China’s PMI reports could affect how the currency trades. Given the recent strength of the currency, the risk is to downside for the manufacturing report. Technically lower highs and lower lows puts AUD/USD at risk of falling below 78 cents," said BK Asset Managment's Kathy Lien.

Building Approvals (July) and Construction Work Done (Q2) are out on Wednesday at 2.30 with the former expected to show a -5.1% drop and the latter a 1.1% rise.

Private Capital Expenditure is the main release in the week ahead for the Aussie according to Canadian IB TD Securities who expect a 0.4% rise in Q2 against market expectations of only 0.2%.

"We expect upgrades to the investment spend, consistent with upbeat business confidence surveys and monthly investment intentions. Market range –4% to +2.5% for q/q capex, and annual raw print median mostly $A96b and above," said TD Securities.

Data and Events to Watch for the Pound

It is a thin week for UK data with the only releases of any significance Consumer Confidence on Thursday 31 at 12.05 BST, and Manufacturing PMI, on Friday, September 1 at 9.30, although analysts do not see either as being market moving.

House Price data from Nationwide will also be released at 7.00 on Tuesday, August 29.

But it will be Brexit negotiations that matter for Sterling in the coming week as the EU and UK sit down for their third round of talks.

"The central bank’s ongoing concerns about Brexit, uneven data and the prospect of a stronger U.S. Dollar, kept Sterling under pressure and we believe these same factors will lead to the currency’s continued underperformance this coming week," says BK Asset Management's Kathy Lien.

"The last we heard, Brexit talks could be delayed until December – 2 months later than planned as disagreements have caused the government to hope for a change in the German government. Germany holds federal elections at the end of September but Angela Merkel is widely expected to win," adds Lien.

But there is a risk markets approach the Pound in too negative a fashion ahead of the next round of talks, which commence on Monday, August 28.

The U.K. government is sticking to its view that they should not pay a penny more than their legal obligations according to foreign minister Boris Johnson. However, Johnson has also made clear that the UK accepts it has obligations with regards to paying a settlement fee.

So this could be constructive in that the Government is showing some unity of purpose and are notably softer in rhetoric.

News that the opposition Labour party appear to be shifting to a much softer version of Brexit, however, could offset the slide in Sterling if it pressures the Government to adopt a similar stance.

Shadow minister for Brexit, Kier Starmer, has set out Labour's revised position in an Observer article this weekend, which has the potential to rattle markets.

Labour's new position is that the UK will keep membership of the Economic and Customs union - but not the political union - during a handover period of 4 years after the official exit date in 2019, with a view to potentially retaining some aspects of membership forever, and negotiating out those which are less desirable.

With markets so negative on Sterling we believe the risks are now to the upside. Specifically, if EU Brexit negotiator Chief Michel Barnier were to say at the conclusion of this week's negotiations that progress has been made, the Pound could pop.

The UK Government's position papers, released over recent weeks, should provide welcome clarity for negotiations. If some good progress can be made over coming days the oversold Sterling might find the fundamental trigger to a recovery.