- GBP/AUD is trading in a range with a downside bias at the start of the new week

- The main release for Sterling in the week ahead is GDP growth data for the first quarter of 2018

- The main release for the Australian Dollar is inflation data for Q1

© Andrey Popov, Adobe Stock

GBP/AUD continues oscillating within a band between 1.82 and 1.85 as the new trading week begins.

The Pound-to-Australian Dollar Rate is rising in a medium-term uptrend as illustrated on the chart below, which shows the exchange rate steadily rising ever since the August 2017 lows at 1.61 - the current spot price is 1.8249.

This trend has recently hit a tough obstacle in the form of the 200-week moving average - the green line on the chart which has been capping price action at just below the 1.85 level for the last several weeks.

Major moving averages such as the 200-week often act as barriers to the trend because they are popular indicators used by private and institutional investors alike to make trading decisions.

When they are touched by the exchange rate there is a greater than average amount of buying or selling which takes place around them, which increases supply (normally in an uptrend) or demand (in a downtrend) and leads price action to stall.

Sometimes the exchange rate totally reverses at the level of major moving averages too, so there is a possibility GBP/AUD may be susceptible to a reversal at the current level.

The daily chart below shows price action in more detail and potentially indicates a slightly bearish bias due to the shape of the sideways consolidation which has been forming over the last few weeks.

The pattern formed looks like it might be what is known as a 'fulcrum' pattern, which whilst taken from the art of point and figure chart analysis, nevertheless, can be applied in rare situations where similar patterns can be seen to have formed on normal price charts.

Fulcrum's are reversal patterns, so the one on GBP/AUD seems to suggest a greater propensity to a break lower, however, we would ideally wish to see a break below the 1.8150 level for confirmation and if so then a move down to a target at 1.8050.

Nevertheless, we do not discount the possibility of a breakout higher either, but would ideally wish to see a break above the 1.8508 year's peak for confirmation, before expecting a move up to a target at 1.8600.

Data and Events to Watch for the Australian Dollar

Inflation impacts on the level of interest rates set by the Reserve Bank of Australia (RBA) and this in turn impacts on the exchange rate.

Higher interest rates tend to lead to a stronger currency because they attract greater inflows of foreign capital, drawn by the promise of higher returns.

If the Q1 inflation data out on Tuesday at 2.30 GMT is higher than the forecast 0.5% quarter-on-quarter (qoq) figure, or the 2.0% year-on-year estimate, it could lift the Aussie (or push down GBP/AUD).

Another major event for the Aussie in the week ahead is the speech from RBA governor Kent, at 11.00 on Monday, April 23.

News and Data to Watch for the Pound

Expectations are for growth to slow slightly to 0.3% quarter-on-quarter (qoq) compared to 0.4% in Q4 and to remain unchanged at 1.4% compared to the year before (yoy).

This is no doubt due to the bad weather in Q1, but given growing doubts about the UK's economy in general the market may be expecting a lower result, which would further lower the probability of the BOE raising interest rates in May.

From being 96% certain the BOE would hike interest rates two weeks ago, the market is now only 50% sure - a lower GDP reading would reduce that even further. Generally higher interest rates equal a stronger currency and vice-versa as higher rates attract inflows from foreign investors drawn by the promise of higher returns.

Some analysts are even more pessimistic about Q1 growth.

"We are penciling in a slowing in the growth pace from +0.4% qoq in Q4 2017 to +0.2% in Q1. Furthermore, if anything, risks look to be to the downside of a +0.2% print," says Ryan Djajasaputra of Investec.

Although Djajasaputra puts it down almost entirely to bad weather rather than anything else, and thus a temporary negative.

"We suspect that Q2 GDP will not look quite as soft, especially with the household cash squeeze slowly turning around," adds the analyst.

Apart from GDP data, there are no other top-tier releases for the Pound in the coming week, but GfK Consumer Confidence is expected to continue showing a negative -7 reading in April when it is released on Friday at 00.01.

There are also three surveys from the Consortium of British Industry (CBI), the Business Optimism Index and the Industrial Trends Orders at 11.00 on Tuesday, followed by the Distributive Trades survey on Thursday at 11.00, which is forecast to show a rise to 5 from -8.

In addition, Public Sector Borrowing figures for March are out on Tuesday at 9.30.

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