The to for sterling remains negative. Since the October lows the pound has made tentative progress to the upside, but the recovery looks fragile, and the trend is still down. Our recent advice has been that buyers of AUD should cover at least half of any requirement now, and that view is unchanged.

Balanced against these positives for AUD, we've had a very mixed bag of data for the pound over the last week. Public sector borrowing was far higher than expected for October (£11bn versus £7bn expected) and traders are still concerned that further quantitative easing may lie ahead after last week's Bank of England minutes revealed that one MPC member voted for a £40bn increase. On the plus side, inflation for October was a healthy 1.5%, and we are expecting a slight upward revision to the preliminary estimate of third quarter GDP tomorrow.

The technical outlook remains negative. At the moment there is every reason to believe that the last few weeks represent a mere pause in the downtrend, and that lower prices are in the post. Buyers of Australian currency should consider covering at least half if not all of their requirement at these levels. Those looking for a bounce should consider using a stop order to protect against renewed downside.

Sterling was marching steadily higher through mid October until we hit a major stumbling block on Friday 23rd. Third quarter growth figures didn't show any growth at all. In fact the economy contracted by 0.4% instead of the 0.2% expansion that analysts were expecting. That prompted a vicious sell off, sending the pound three cents lower almost immediately. Last week was somewhat better as the stock markets finally entered correction territory, sending investors scurrying away from high yield currencies like the Aussie dollar, and into more defensive plays including the dollar and pound. By Thursday/Friday the previous week's growth shocker was looking more like a minor blip as sterling rallied back to the levels it was trading at the start of October. Much now depends on the Bank of England meeting this Thursday (November 5th). It seems to have come around very quickly after they elected to keep interest rates and quantitative easing on hold in October. Another "no change" vote would certainly help sterling's cause this week, especially if the subsequent meeting minutes (usually released a few days later) show another 9-0 vote.

The technical outlook remains negative, although we are seeing some "green shoots" for the pound. The last two weeks' rally is too little to say the trend has changed. For that we would need to see a sustained improvement or signs of a real base being built. At the moment we have to view this bounce as a correction, and accordingly our advice is for AUD buyers to cover at least half of any requirement now while the exchange rate is trading nearly ten cents off the recent lows.

The Reserve Bank of Australia unexpectedly raised interest rates last week. The AUD has been strong because it yielded 3% before the hike, so now at 3.25% it looks even more attractive, and investors are now betting that interest rates there will be 3.5% before the end of the year. Gold continues to climb to all time highs. Set against those tailwinds Australia had a higher than expected trade deficit in August, but jobs data for September showed a dip in unemployment. On balance, mostly positive for AUD.

Sterling is enjoying a strong rally today after bullish comments from Bank of England policy maker Paul Fisher noting that quantitative easing is working well. The scene was already set for some sort of rebound after better than expected UK jobless figures yesterday.

The Fisher comments sparked some further interest in the pound today, and the rally gained traction as a full blown "short squeeze" developed over the course of Thursday morning. A short squeeze happens when speculators who have sold the pound in expectation of further declines are forced to re-buy the currency to close their bets and stem losses. This situation can develop with little warning when large numbers of traders are caught "offside" when a market turns unexpectedly. That is what we are seeing today.

There is still some debate over whether the BoE may extend so called "QE" at the November meeting, but traders will be focussing on next week's release of the October meeting minutes to get a real view of how that debate is looking inside the BoE.

The technical outlook is still negative even with today's rally. Today's chart includes a moving average which gives an idea of the trend (as if the price wasn't enough to determine that the trend is down!). We would need to see a lot more work by sterling to review our negative outlook.

The Reserve Bank of Australia has raised interest rates overnight in a surprise move. A quarter point hike puts the overnight rate at 3.25%, up from 3.0%. Analysts had widely expected no change, although there was an underlying impression that the RBA statement would include reference to possible future rate hikes.

Sentiment towards the pound improved marginally as traders started to look forward to this month's Bank of England meeting this Thursday, with the all important quantitative easing package expected to remain on hold at £175bn; but that sentiment is overshadowed by the expectation that there may be an extension in November, leaving a cloud hanging over the market in the meantime. That may make it difficult for sterling to stage any sustainable rally in the short term. Data flow was mixed last week. The IMF upgraded its 2010 growth forecast for the UK (to 0.9% from 0.2%), but soft manufacturing data for September surprised to the downside as market watchers expected better figures off the back of higher exports. The CBI's retail sales figure was better than expected, and the final revision to Q2 GDP saw an improvement to - 0.6% from previously published -0.8%.

The commodity currencies have an extra tail wind this week. Gold is soaring towards all time highs (currently $1020 per ounce), and oil is also being dragged higher. That gives AUD a further boost and is helping it make new highs against the pound this morning.