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

GBP/USD falling ahead of the UK Budget & US GDP data

GBP.USD is falling as the market turns cautious ahead of the labour government's debut budget later today. Rachel Reeves, the Chancellor, is expected to set out about £35 billion in tax rises and spending cuts and reshape fiscal rules to give her space to borrow more for public investment. National Insurance paid by employers' capital gains and inheritance tax are at risk of rising.

As far as the pound is concerned, higher taxes are often considered deflationary and could help the Bank of England with its task of cutting interest rates, keeping pressure on the pound. Meanwhile, any growth measures from Reeves are likely to be longer-term, so they could have little impact on the near-term value of the sterling.

However, the market will be watching Reeves’ plan to borrow for investment. An additional supply of UK government bonds above 10-20 billion a year could negatively affect gilts and sterling.

However, Rachel Reeves will likely tread carefully, given the market's reaction to the Liz Truss budget two years ago.

The US dollar is hovering at a 3-month high as its rally pauses for breath. The US dollar has been boosted by expectations that the Federal Reserve will cut interest rates more gradually after a series of strong data. Attention is now turning to US Q3 GDP, which is expected to rise modestly from Q2 to 3.1% While inflation continues to fall. Yesterday, consumer confidence jumped to its highest level in two years.

US ADP payrolls will also be in focus and are expected to show 115K jobs added, down from 143k in September. The data comes after jolts jobs openings fell by more than expected yesterday, pointing to some weakness in the US labour market ahead of Friday’s key nonfarm payroll data.

GBP/USD forecast – Technical analysis

After falling from 1.3420 and finding support at 1.29 on the rising trendline support, GBP/USD is hovering around 1.30.

A break back below the 1.30 level and sellers will need to take out 1.29 to extend the bearish trend towards the 200 SMA at 1.2810.

Buyers will need to rise above 1.31, the mid-October high, to build a recovery to the 50 SMA at 1.3140 and 1.3260, the August high.

FTSE 100 falls to a 7-week low pre-Budget

FTSE 100 has fallen to a 6-week low ahead of the budget as investors show signs of nerves before Rachel Reeves’ unveiling of the government’s plans for spending and revenue.

Investors are bracing themselves for what is expected to be a very significant budget, which could highlight the size of the UK's fiscal challenges.

The FTSE 100 is an international index. However, there are certain sectors which are in focus.

Any measures deemed to support bricks-and-mortar retailers could help boost the retail sector. However, this would also depend on measures not greatly impacting households' discretionary spending.

The housing sector will also be in focus, with any additional support from the government to help people get on the housing ladder or encourage builders to build more, helping to lift the housebuilding sector.

Gambling stocks, which have already fallen sharply on worries of higher taxes, could struggle further.

Elsewhere, earnings continued to roll in, with Next raising its guidance for the fourth quarter and full year as sales surged.

Standard Chartered is also rising after lifting its outlook. Meanwhile, resource stocks are under pressure, with Anglo-American and BP leading the move southwards.

FTSE 100 forecast - technical analysis

The FTSE 100 has traded within a familiar range since late May. The price recently rebounded lower from the upper band of the range at 8325, falling sharply towards 8150, the lower band.

Sellers, supported by the move below the 100 SMA and the RSI below 50, keep sellers hopeful of further losses. Sellers will look to fall below 8150 to extend losses towards the 200 SMA at 8100. Below here, 8000 comes into focus.

Should support at 8150 hold, buyers will need to rise towards 8325 to break out of the holding pattern and bring 8400 into focus.