GBP/USD, DAX Forecast: Two trades to watch

GBP/USD falls was wage growth cools

UK wage growth inc. bonuses to 6.5% from 7.2%
UK unemployment at 4.2%
GBP/USD breaks down the 20 SMA

GBP/USD is falling for a third straight day amid U.S. dollar strength from safe-haven flows as Trump wins a landslide victory in Iowa and after UK jobs data showed that wage growth cooled by more than expected.

While the unemployment rate remained steady at 4.2%, UK wage growth softened across both private and public sectors, with average earnings excluding bonuses easing to 6.6%, but the figure including bonuses was cooler at 6.5%, down from 7.2%.

Meanwhile, job vacancies dropped by 49,000 in the final quarter of the year as signs of weakness seeped into the labour market.

However, the has seen investors pull forward Bank of England rate bets slightly. Traders are pricing in around 24 basis points of cuts by the May meeting, which is up very slightly from 22 points before the data, pulling GBP lower. The market is also pricing in almost three cuts by August.

Inflation UK inflation data is due tomorrow, and retail sales are due Friday.

Looking ahead to the US session, the manufacturing sector will be in focus as the New York Empire State manufacturing index is expected to increase to -5 in January, up from -14.5, with an improving sector supporting expectations of a soft landing.

GBP/USD forecast – technical analysis

After failing to rise above 1.28 at the end of last week, the price has fallen lower, breaking below the 20 SMA as it heads towards 1.26, the January low. A break below here creates a lower low and exposes the 200 SMA.

On the upside, buyers will need a close above the 20 SMA to test resistance at 1.28 and 1.2830, the December high.

DAX falls in risk off trade ahead of German economic sentiment data

ECB policymakers push back on rate cut bets
Trump wins a landslide in Iowa
ZEW economic sentiment is expected to fall to 12
DAX heads towards 16445

The DAX is heading for a week open amid a risk of mode in the market after Trump won a convincing victory in Iowa and after ECB policymakers pushed back against deep rate cuts in 2024.

On the data front, German inflation confirmed a rise to 3.8% in December, up from 3.2% in November. This was the second reading, so the market is moving as the preliminary reading; however, it does support the ECB’s view that the right path toward the 2% target could be long and bumpy.

ECB governing council member Robert Holzman said on Monday at the World Economic Forum in Davos, Switzerland, that there is a possibility of no rate cuts this year as he pushed back against expectations of an April cut.

Attention now turns to the German ZEW economic sentiment indicator, which is expected to ease to 12, down from 12.8. Falling economic morale could add to recession concerns, notably after German GDP data showed the economy contracted -0.3% in 2023, raising the possibility of a two-year recession.

Looking ahead to the US session, earnings will continue to roll in. Investors could also look to FOMC member Christopher Waller, who is due to speak.

DAX forecast – technical analysis

The DAX has been consolidating below 17000. Failure to rise above 17000, in addition to a break below the 20 SMA and the RSI falling below 50, keeps sellers optimistic of further losses.

Immediate support can be seen at 16445. A breakdown of this level opens the door to 16300, the 50 SMA, and the 16000 round number.

Should buyers successfully defend 16445, a recovery would need to retake the 20 SMA at 16670 for a retest of 17000.

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