GBP/USD, DAX outlook: Two trades to watch

GBP/USD rises after a hot job report & ahead of US inflation

• UK wages jump 7.2% & unemployment falls to 3.8%
• US CPI forecast to cool to 4.1%
• GBP/USD breaks out of symmetrical triangle

The pound is pushing higher after UK job data comes in much hotter than expected. You can employment unexpectedly fell to 3.8% in the three months to March, down from 3.9%, defying expectations of a rise to 4%.

Meanwhile, wage growth of 7.2% in April was well above expectations of 6.9% and up from 6.8% in March, fuelling fears of a wage/price spiral and highlighting the need for further rate hikes.

The data will have unnerved the BoE ahead of next week’s interest rare decision, where the central bank is expected to raise interest rates by a further 25 basis points.

However, following today's data, peak rate expectations have now risen to 5.75% later this year, up from just over 5% at the start of the year.

To put this into context, at the peak of the turmoil following Lizz Truss’ fiscal plan, peak rate expectations were 6.25%, just 50 basis points above where we are now.

Attention now turns to US inflation data, which is expected to cool to 4.1% YoY in May from 4.9%. Core inflation is expected to ease to 5.2% from 5.5%.

The data comes as the Federal Reserve meets for its two-day meeting ahead of the interest rate decision tomorrow. Cooling inflation could fuel bets that the Fed will skip a rate hike in June, which could keep pressure on the US dollar.

GBP/USD outlook – technical analysis

GBP/USD broke out of its symmetrical triangle, which along with the RSI in bullish territory, keeps buyers hopeful of further upside.

Buyers will look for a rise of 1.26, the weekly high, to extend the bullish run to 1.2680, the 2023 high, and 1.27 round number.

Sellers could look for a break below 1.2475, the 50 sma, and falling trendline support ahead of 1.2415, the multi-month trendline support. A break below 1.2370, the June low, would create a lower low.

DAX rises ahead of German ZEW economic sentiment data, US CPI

• German inflation cooled to 6.1% YoY in May from 7.2%
• German ZEW economic sentiment is expected to deteriorate to -12.7
• DAX rises towards its all-time high of 16332

The DAX, along with other European bourses, is heading higher, adding to gains from yesterday, bringing its all-time high at 16332 back into focus. The index has been supported by optimism that the Fed could skip rate hikes and on the hope that the ECB could be nearing the end of its hiking cycle.

Data today showed that German inflation cooled to 6.1%, down from 7.2% YoY in May. On a monthly basis, inflation cooled -0.1% from 0.6% MoM in April. This was in line with the preliminary reading and supports the view that, so far, inflation is cooling quickly in the region. The ECB is expected to hike rates again this week and again in July.

Looking ahead, attention will now turn to German ZEW economic sentiment data, which is expected to continue deteriorating in June after turning negative for the first time this year in May. Forecasts are for ZEW German economic sentiment to fall to -12.7 in June from -10.7, raising concerns over the outlook for the economy. Germany slipped into recession in Q1, and the deteriorating outlook could suggest this may extend into Q2.

In addition to data from Germany, investors will also closely watch US inflation data. Cooling inflation could fuel expectations of a more dovish Federal Reserve, boosting risk sentiment, and lifting stocks.

DAX outlook- technical analysis

After consolidating last week and rebounding off the 50 sma, the DAX has broken out above 16114, last week’s high. This, combined with the RSI above 50, supports further upside. Buyers could look for a rise above 16332 to fresh all-time highs.

Sellers will look for a break below the 50 sma at 15900 to negate the near-term uptrend and break below the multi-month rising trendline. Below here 15625, the May low comes into play. A break below here creates a lower low.