FTSE 100, EUR/USD Forecast: Two trades to watch

FTSE rises as inflation falls to a 3-year low

UK CPI eased to 1.7% YoY in September
Service sector inflation eased to 4.9%
FTSE tests 8325 resistance

The pound is falling, and the FTSE100 is rising following cooler-than-expected inflation data, which paves the way for further rate cuts from the BoE.

Headline CPI cooled to 1.7%, down from 2.2% and below forecasts of 1.9%. Inflation has fallen below the back below the BoE’s 2% target rate after two months above it. Core inflation also cooled by more than expected to 3.2%.

Meanwhile, service sector inflation, an area that policymakers have been watching closely, also cooled more than expected to 4.9%, down from 5.6% and below forecasts of 5.2%. The data came after wage growth cooled to 4.9% and marked the largest decline in service sector inflation since 2020.

CPI below 2% plus the cooling of service sector inflation and wage growth paves the way for the central bank to cut interest rates by 25 basis points at the November meeting and could cut rates again in December.

At the start of this month, Bank of England governor Andrew Bailey said that the Bank of England could cut interest rates more aggressively if inflation data allow it, and today’s inflation data certainly appears to suggest that. The market is pricing in 42 basis points worth of cuts this year.

Following the release, the pound tumbled, helping the multinationals on the FTSE 100 rise. Owing to the favorable exchange rate, housebuilders were also performing well, fueled by optimism that more affordable mortgages will boost the housing market.

FTSE forecast – technical analysis

FTSE has been trading in a tight range around the 200 SMA on the 4-hour chart. The price has aggressively risen above the 200 SMA, with a bullish engulfing candle, and is testing resistance around 8325.

Arise above 8325 and 8370 the mid-September high opens the door to 8420 and 8475 towards fresh record highs.

Failure to rise above 8325 could result in a re-test of the 200 SMA at 8265. A break below 8200 creates a lower low.

EUR/USD falls ahead of tomorrow's ECB meeting

Atlanta Fed President Bostic sees one 25 bps rate cut left this year
ECB is set to cut rates by 25 bps tomorrow
EUR/USD tests 200 SMA

EUR/USD is falling for a third straight day on ECB Federal Reserve divergence.

The USD is being supported around a 2-month high on expectations that the Federal Reserve will adopt a slower pace to rate cuts. The market is pricing in a 95% probability of a 25-basis point rate cut in November after the 50-basis point rate cut in September.

Yesterday, Atlanta Fed president Raphael Bostic said that he sees only one 25-basis-point rate cut between now and the end of the year.

Meanwhile, the euro is under pressure ahead of the looming central bank rate decision tomorrow. The ECB is expected to cut interest rates by 25 basis points in October. With inflation below the central bank's 2% target and concerns over the growth outlook, the central bank is expected to continue cutting rates into 2025, keeping the euro under pressure.

The eurozone economic calendar is quiet today; investors will be positioning for the ECB meeting and US retail sales tomorrow.

EUR/USD forecast – technical analysis

After forming a double top at 1.12, EUR/USD fell lower, breaking below tge 50 SMA and 1.10 the psychological level. The price is testing support of the 200 SMA.

With the RSI teetering on overbought territory the selloff in the pair could steady at this level for now.

Sellers will need to take out the 200 SMA at 1.0880 to extend losses towards 1.08 and 1.0780 the August low.

Should the 200 SMA hold, buyers would look to rise above the 1.09 round number. A rise above 1.10 would negate the near-term selloff.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.