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The Pound to Australian dollar exchange rate (GBP/AUD) is at 2.0152 on Monday, having been as high as 2.0342 on Friday.
A new selloff is consistent with a more chipper mood in global markets, no doubt down to signs of impending resolution to the U.S. government shutdown as Democrats and Republicans hint at resolving some sticking points.
The Aussie is sensitive to how confident investors are feeling, meaning the happy vibes this Monday are helping it advance. This, in turn, leaves GBP/AUD prone to a retest of 2.0 and an eventual break lower.
"Measures of risk appetite are improving and investors are moving out of safe havens like the Japanese yen and Swiss franc into economically-sensitive units like the Aussie," says Karl Schamotta, Chief Market Strategist at Corpay.
A look at last Monday's Week Ahead Forecast shows this is the kind of price action we have been expecting: the chart shows the annotations we drew for the previous Week Ahead Forecast, showing our prediction for a rebound followed by a continuation of the October decline.
We're sticking with the annotations drawn a week ago, as that view looks to have been the right call and is still playing out:
The recent recovery presents as a counter-trend mean-reversion that's a response to the heavy selling seen during October.
The recovery mean reverted to the 21-day exponential moving average (EMA) at 2.0279, where it was promptly rejected.
Interestingly, we are seeing this behaviour in a number of other GBP pairs, so it does have some universal cadence.
Failure at the 21-day opened the door for the current run back down to 2.0, the October 29 low. Potential support here could re-emerge, arresting sterling's decline.
However, a breakdown through 2.0 sees an invite offered by the 1.98 support zone, after which comes 1.96.
GBP's week ahead is dominated by Tuesday's job and wage numbers, where disappointment could accelerate GBPAUD losses.
The market consensus looks for the unemployment rate to have reached 4.9% in October from 4.8% in September, reflecting rising job losses and inactivity rates.
Also, keep an eye on the wage figures, as this is closely associated with inflation. The figure to beat is 4.6%.
The Australian dollar will take cues from broader sentiment, where cues will be taken from further progress towards resolving the U.S. government shutdown.
There's also a number of Federal Reserve speakers to keep an eye on, as this should inform the odds of another rate cut next month.
Any increase in bets for a rate cut will bolster the Aussie.
However, expect it to come under pressure if anything happens to lower those odds, as this would trigger safe-haven seeking at the expense of AUD.