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- Long-term downtrend in GBP/AUD remains in play

- Breakthrough in China-US relations tipped to benefit AUD

- Brexit to drive the Pound

From both a fundamental and technical point of view, the Australian Dollar is tipped to outperform the British Pound over coming days.

The Pound-to-Australian Dollar exchange rate has continued its slide, losing over three cents in the previous week, to close down at 1.7423. Sterling weakened on Brexit uncertainty whilst the Aussie rose on hopes of a breakthrough in trade talks.

A meeting between President’s Trump and Xi at the G20 summit in Buenos Aires fathered an agreement to suspend any new tariffs for 90 days.

This now sets the Australian Dollar up, which is sensitive to trade tensions, for more gains in the week ahead and we see a strong case for GBP/AUD to continue its decline from both a technical and a fundamental standpoint.

The next target for the downtrend is at the 1.7300 August lows, with a break below the 1.7390 lows supplying the green-light.

It may be the case that this target is hit relatively quickly given the game-changing news from the summit, and in this case the next target lower would be at 1.7100, or the January lows. 1.7000 is a further downside target because it is a major round number and, therefore, an obvious place for traders to take profit.

There are compelling bearish signs on the longer-term charts too. The monthly chart formed a very bearish gravestone doji candlestick pattern during October, which gained confirmation after the strong decline in November.

The trio of candlesticks between September and November also formed a pivot swing lower after the exchange rate peaked in October and then broke below the September lows in November. Monthly pivot swings are reliable indicators of major changes in the long-term trend and this suggests a shift to a bearish medium term outlook.

In addition, the monthly chart also shows what looks like a bearish elliot wave falling from the 2015 highs. This wave now looks like it is starting its 5th subwave after completing the long drawn out recovery during subwave 4.

If this is a bona fide wave 5 it should reach to at least the wave 3 lows at 1.5800, expect on the rare occasions it is truncated.

The GBP/AUD exchange rate will start the new week from 1.7548 on the inter-bank markets. UK high-street banks are seen offering rates in the 1.6850-1.6970 bracket for international payments and transfers. Specialist providers are seen offering exchange rates in the 1.73-1.7340 bracket.

The Australian Dollar: What to Watch

The most import fundamental driver for the Australian Dollar is the impact of the positive developments concerning the trade dispute between China and the U.S. at the G20 summit.

It appears the two have agreed to suspend the imposition of further tariffs for 90 days which will delay the planned imposition of 25% tariffs on $250bn of Chinese goods currently tariffed at 10%, planned by the US for the start of the 1st of January.

This should help boost the Australian Dollar which tends to be supported by any news which is favourable for China but is especially sensitive to trade news.

The key data releases for the Aussie Dollar in the week ahead are the balance of trade and then Q3 GDP. Another major event is the Reserve Bank of Australia (RBA) meeting.

The RBA meeting would normally be expected to impact the Aussie the most because it determines interest rates which are a primary driver of currencies, however, this is not expected to be the case at Tuesday meeting scheduled for 3.30 GMT since most economists see no reason for the RBA to shift from its neutral stance.

“The RBA will also be in focus on Tuesday, but investors are not anticipating any surprises from the central bank, which is expected to hold rates unchanged at 1.5% and stick to recent language in its statement,” says a note to from currency brokers XM.com.

Another key release is Q3 GDP data which is forecast to show a 0.6% rise compared to the previous quarter, when it is released on Wednesday at 00.30. A result in line with expectations might have a mildly bullish effect on AUD since it would support the RBA’s optimistic outlook for the economy, and lead to hopes of a hawkish shift in stance.

"On Wednesday, third quarter GDP estimates will show whether the RBA’s consistently upbeat view of the economy is justified,” says XM.com in their client note. "The Australian economy is forecast to have expanded by 0.6% q/q, something which would put the annual growth rate during the July-September quarter at 3.3%, slightly below Q2’s 3.4%."

The trade balance in October is released on Thursday at 00.30, and is forecast to show a slight rise in the surplus to A$3.2bn from 3.0bn in September.

Retail sales in October is out at the same time as the trade balance and forecast to show a 0.2% from September.

The Pound: What to Watch

Brexit politics will probably dominate the Pound in the coming week as Theresa May tries to woo as many MPs as possible to vote for her withdrawal deal.

As things stand, however, it looks increasingly unlikely she will be successful and there is significant uncertainty as to what will happen following the defeat with a number of potential scenarios likely to play out.

The uncertainty is likely to ensure Sterling trades recent ranges with traders unwilling to take a big directional punt on the currency until such a time as they know what the future EU-UK relationship will look like.

At the weekend Sam Gyimah, the Science and Universities minister, became the latest member of May’s government to resign after saying leaving the EU risked the UK’s interests being “repeatedly and permanently hammered,” and that the UK was at risk of losing ‘its voice its vote and its veto’.

Gyimah appeared to endorse a second referendum in his resignation note on facebook, saying, “we shouldn’t dismiss out of hand the idea of asking the people again what future they want, as we all now have a better understanding of the potential paths before us”. His voice added to the growing number now calling for a second referendum.

Prime Minister May only has a majority of 5 seats in Parliament including her DUP allies who number 10 and all of them have said they will vote against her deal because it leaves Northern Ireland vulnerable to being treated differently to the rest of the British Isles.

Further opponents include 'brexiteer' rebels and 'remainers' from with her own party. Labour and other opposition MPs will also be encouraged to vote against her by their party whips.

This leaves the most likely outcome of the December 11 vote a defeat for the government. Experts say this would be most likely followed by either a general election or a second referendum, both causing further uncertainty, and probably keeping Sterling pressured.

On the 'hard' data front, the main releases for the Pound in the coming week are the three Purchasing Manager Index (PMI) surveys for November.

The first PMI to be released is Manufacturing, on Monday, at 9.30 GMT. It is forecast to show a recovery to 51.5 from 51.1 previously.

Construction PMI is out on Tuesday at the same time and is expected to show a fall to 52.6 from 53.2 in the previous month.

Services PMI - the more important of the three - is released on Wednesday and is forecast to rise to 52.5 from 52.2 previously.

PMI’s are often used by economists as a leading indicator of economic growth as the results often signal changes taking place in the broader economy before they are revealed in hard data such as GDP.

A result of over 50 signals an expanding economy whilst below 50 contraction.

Another key event in the week ahead is a speech from Mark Carney the governor of the Bank of England (BOE) on Tuesday at 9.15. This is followed by a speech from BOE’s Vlieghe on Tuesday at 18.00, and Haldane at 18.00 on Monday. Recently the bank released a worst case scenario of how Brexit would impact on the economy.

New car sales in November are set to be released at 9.00 on Wednesday and are considered a positive barometer of wealth creation.

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