The Pound-to-Australian Dollar Outlook for the Week Ahead: Rangebound, with Marginal Upside Bias

- GBP/AUD is in a rangebound consolidation on the weekly and daily charts

- Previous activity suggests a marginal bullish bias

- Brexit politics are set to dominate GBP whilst labour data is the main release for

The Pound-to-Australian Dollar is trading in a range between the 200-week MA at about 1.85 and the 50-week MA at 1.75 with the pair due to open the week at 1.7820.

The pair is trading a range and, therefore, could go in either direction during the coming week and we don't have a strong convictional call on a technical basis.

If there is any bias at all then it is probably marginally to the upside, yet even so momentum remains weak which adds further doubt to the bullish case.

Note, for example, how the current level of momentum as measured by RSI is at the same level as it was in September 2017 when the market was down at 1.6250:

The daily chart below shows how the current consolidation was preceded by a move up which suggests a slight bias to a continuation higher after a breakout.

Both the 50 and 200-day Moving Averages are below the consolidation and acting supportively which improves the chances of a break higher.

For confirmation we would want to see a break above the 1.7981 June 21 highs, to potential target at 1.8350.

Given the overall sideways nature of the market this is not a conviction call.

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What to watch in the week ahead for the Australian Dollar

While the technical picture for GBP/AUD suggests something of a stalemate, a busy economic calendar for both currencies could well be where attention is fully focussed.

The main release for the Australian Dollar in the week ahead is employment data out at 1.30 GMT on Thursday, July 19. Aussie jobs are expected by the markets to have increased by 17k in June  and the employment rate by 5.4%.

Any deviation from this number will likely move the currency with a beat on expectations aiding gains, and a miss prompting losses.

"Employment for Jun is likely to increase by an “average” +20k, as job ads continue to expand and seasonals are supportive of a solid increase," say TD securities in a preview note of the release.

"Risks are skewed towards a pickup in the participation rate, all else being equal lifts the u-rate back to 5.5%," they add.

The other main release for the Aussie Dollar is the release of Reserve Bank of Australia (RBA) June meeting minutes on Tuesday at 12.30 GMT.

The RBA left the cash rate unchanged at a record low of 1.5 percent at its July meeting, citing sluggishness in inflation and wages, high household debt and the risk to global growth from trade policy in the US, and the meeting minutes are likely to simply reiterate this.

Given Australia's heavily commodity export-orientated economy, current global trade was fears are likely to make the RBA extra cautious before increasing interest rates. Higher interest rates are usually appreciative for currencies as the attract greater inflows of foreign capital, drawn by the promise of higher returns.

What to watch in the week ahead for the Pound

There is a considerable bundle of data and events in the week ahead for Sterling, which suggests it could be a highly volatile time for the currency.

On the political front there will be votes on amendments to the Trade and Customs Bill, which help form the basis of the government's new 'softer' Brexit proposal. These are expected to take place on Monday 16 and Tuesday 17.

They could be critical in gauging whether the plan has a likelihood of success and implementation.

"Another legislative showdown takes place in the UK House of Commons as the Trade and Customs Bills are voted on. Amendments to the bill have come from 'hard' Brexiteers (trying to undo the white paper) and Remainers (trying to bind the UK to a customs union). Some of these votes could come down to the wire, and have significant implications for Brexit negotiations," says Actionforex.com in their week ahead analysis.

Sterling may catch a bid if Brexit supporters in the Conservative party fail in their upcoming attempt to harden the UK government's plan on leaving the EU, as failure should increase the GBP-positive probability of a relatively soft Brexit.

We note a string of opinion polls out over recent days that shows support for the Convervatives has fallen below that of Labour with a good proportion of voters flocking back to UKIP having judged that May will not deliver the Brexit they desire.

This will remind Convervative lawmakers that bringing down the government will likely throw their party onto the opposition benches. It does also however offer the potential to sharpen the determination of Brexiteers who believe their electoral success will lie with delivering a clean 'hard' Brexit.

From a 'hard' data perspective the week has three major, potentially market moving, releases too: labour market data on Tuesday, CPI on Wednesday and retail sales on Thursday - all are at 9.30 UK time (8.30 GMT).

Their significance is further heightened by the fact that they may impact on the decision-making of the Bank of England (BOE) when it has its pivotal meeting in August. Because the probabilities of a hike or not, are so evenly balanced, next week's data could prove critical in swinging the vote one way or another.

Labour market data for May, is expected to show continued improvement with a 150K rise in employment on a three-month-on-three-month basis. 

The more important wage data component of the release, which is more of an influence on inflation and therefore Bank of England decision-making, is expected to show only modest rises of 2.6% for headline and 2.8% (including bonuses).

Stronger wage rises are necessary to increase the chances of a rate hike and a disappointment could weigh heavily on Sterling.

CPI inflation data in June, out on Wednesday, is likely to show a rise due to the temporary influence of higher oil prices, however, if the main driver is in fact only fuel prices, it is unlikely to have much impact on the Bank of England who are more likely to look through inflation from temporary factors.

Therefore we believe the core CPI reading will be of more interest to the Bank of England as it shows the underlying inflationary pressures present in the economy.

Core CPI is forecast to read at 2.1% (month-on-month) while headline CPI is forecast to read at 0.2% month-on-month and 2.6% year-on-year.

"We suspect that CPI inflation edged up to 2.6% in June, owing to a rise in energy prices. But this should not mark the start of a sustained rise," says Andrew Wishart, UK economist at Capital Economics.

Retail sales for June are set for release on Thursday but the "evidence on strength," says Capital Economic's Wishart, "has been decidedly mixed."

On the one hand, the strong data in April and May will be a hard act to follow in June, yet on the other hand factors such as the good weather and the World Cup could support a rise.

"More sunshine, warm weather, and World Cup should be supportive. Our base case 0.4% forecast leaves a very strong trend for Q2 sales, and a solid hand-off to Q3," says TD securities in their note on data in the week ahead.

Markets are forecasting a reading of 0.4% on a month-on-month basis and 3.9% annualised.

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