GBP/AUD Week Ahead Forecast: The Bulls' Last Stand

• GBPAUD looks to have entered a downtrend
• Following last week's 0.90% drop
• But, a key support line now being tested
• This is a last stand for GBPAUD bulls

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The Pound to Australian Dollar exchange rate has fallen to its lowest levels since September and appears to have entered a downtrend, which opens the door to a test of the June lows next.

GBPAUD is testing the major support line at 1.18850, which has been successfully defended on several occasions in 2023 and now marks a last stand for the GBPAUD bulls.

Should the exchange rate break below here, risks for a move to 1.85, which forms the June lows, are evident.

Above: GBPAUD shown at daily intervals with support line and DMAs annotated. Track AUD with your own custom rate alerts. Set Up Here.

More broadly, last week's 0.90% drop means the exchange rate has likely entered a downtrend.

The change in status from uptrend to downtrend results from the confirmed break last week below the 200-day moving average (DMA), currently at 1.9011. (See the blue line in the above chart).

"The 200 day moving averages can be key pivot points over long horizons and currencies along with other assets tend to get 'trapped' above or below their moving averages for months at a time," explains W. Brad Bechtel, head of FX strategy at Jefferies.

"So when you see something making a move one way or the other through the 200dma, you want to try to assess whether we are in for a new period of structural strength (weakness) above (or below) the 200dma moving average," he adds.

For GBPAUD, the prospect of a new period of structural weakness is, therefore, a possibility.

There are no market-moving events due from Australia or China this week that we will be watching from an AUD perspective.

From the GBP perspective, inflation due midweek and retail sales due on Friday are worth watching.

CPI inflation is expected to print at 4.4% year-on-year, down from 4.6% previously, with the core CPI reading at 5.5%.

Should the data undershoot, we could see the Pound come under pressure through the midweek session.

"Base effects in the food category is likely to be the largest source of downward pressure in November. Lower petrol prices should also weigh on headline inflation," says a note from Oxford Economics.

Retail sales and quarterly GDP figures will cap the week off, with markets looking for retail sales to print at -1.1% year-on-year for November. Quarterly GDP is expected to be flat at 0% quarter-on-quarter in the third quarter.

Note that much of the sting in GDP from a market perspective will have been removed by last week's monthly GDP release, so this is expected to have a limited impact on the Pound.