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

FTSE 100 rises to record levels ahead of the BoE rate decision

• BoE expected to cut rates by 25 bps to 4.5%
• Economic projections & Bailey’s statement will be key
• FTSE trades t record levels below 8700

He fits the 100 is opened almost 1% higher amid improving market sentiment across Europe and the US on eating trade tensions with President Trump and the head of the Bank of England interest rate decision later today.

The central bank is expected to cut interest rates by 25 basis points to 4.5%, marking the third rate cut this easing cycle. In the December decision, three policymakers voted to cut rates. This time, the vote split will likely be 7-2 or 8-1.

Given that the right parts are expected, the market will pay close attention to Bank of England governor Andrew Bailey's statement for further clues about the outlook for interest rates. Update growth and inflation forecasts will also be in focus.

Whilst UK headline inflation is 2.5%, it is still above target. Service sector inflation also cooled to 4.4%, down from 5%. While my office is a step in the right direction, it still may be too sticky for policymakers to adopt a dovish pivot. Meanwhile, growth in the UK is stagnant, and the outlook is deteriorating ahead of the start of the increased tax burden on firms following October’s budget.

Markets are pricing in three interest rate cuts from the Bank of England this year.

A dovish-sounding Bank of England could pull the pound lower, boosting multinationals on the FTSE as they benefit from a more favorable exchange rate. Meanwhile, domestic firms of the FTSE may also get a helping hand higher the prospect of lower borrowing costs.

FTSE 100 forecast – technical analysis

FTSE has extended its recovery to record highs of 8695. Buyers, supported by the RSI above 50, will look to rise above 8700, and with blue skies above 88750 would be the next logical target.

Support can be seen at 8500, the weekly low, and 8480, the May 2024 high. Below here, 8400 comes into play, negating the near-term uptrend.

EUR/USD falls ahead of retail sales, US jobless claims

• Eurozone retail sales are  expected to fall -0.1% MoM
• US jobless claims are forecast to rise to 213k from 207k
• EUR/USD struggles below 1.04

EUR/USD is falling After two days of gains, dropping below 104 as a broad rebound in the US dollar weighs on the pair. Trade war fears have eased but worries regarding trade tariffs on the European Union continue to act as a headwind for the pair

Upbeat German factory orders have failed to boost the EUR. Factory orders jumped 6.9% month over Month in December, offering a glimmer of economic optimism and adding to gains of 2% in November. Recent German data has suggested that the downturn in the euro zone’s largest economy may be bottoming out.

Attention will now turn to eurozone retail sales, which are expected to fall 0.1% month on month after increasing 0.1% in November. Stronger-than-expected sales could contribute to a more optimistic outlook for the region, which is currently suffering stagnation in growth.

The ECB cut rates by 25 basis points to support the weakening economy.

Looking ahead to the afternoon, attention will be on US jobless claims and challenger job cuts. Jobless claims are expected to rise to 213k from 220k..

Other US data was mixed this week, with ADP payrolls stronger than expected, reinforcing strength in the labor market, but the SM services PMI felt 52.8, missing 54.2 expectations.

EUR/USD forecast - technical analysis

EUR/USD recovered from the brief spike from 1.02 and continues to trade is a neutral bias between 1.03 and 1.0450.

However, failure to rise above the 50 SMA could favor sellers. A break below 1.03 could see sellers gain momentum towards 1.02.

A bullish scenario would see buyers rise above the 50 SMA and 1.0450, creating a higher high and bringing 1.05 and 1.0530 into focus ahead of 1.06.