GBP/USD, DAX Forecast: Two trades to watch

GBP/USD claws higher ahead of US data

• US ADP payrolls & ISM services PMI data is due
• UK services PMI is in focus ahead of the BoE rate decision tomorrow
• GBP/USD tests 1.25 resistance

GBP/USD is rising for a third straight session, capitalizing on a weaker USD as investors way up trade tariff developments and look ahead to more do I stay too.

GBP/USD briefly spiked lower at the start of the week before quickly recovering as U.S. President Trump paused trade tariffs on Mexico and Canada for one month but pressed ahead with 10% trade tariffs against China. Retaliatory levies in the US from China were lower than expected, helping to ease worries of an all-out trade war.

U.S. data this week has been mixed, with the ISM manufacturing PMI returning to expansion after 26 months of contraction. However, yesterday's JOLTS job openings data were weaker than expected, falling to 7.6 million in December from 8 million and down from 8.156 million.

 US ADP payrolls are due later today and are expected to rise 150,000 from 120,000. Meanwhile, the services PMI very results for January are also expected to rise to 54 points 354.1.

These data points come ahead of Friday's on from payrolls which are expected to ease from 256k to 170k.

GBP will look to UK services and composite PMI data today, although this is the second reading, so it tends to be less market-moving. Attention will turn to tomorrow’s BoE rate decision, where the central bank is expected to cut rates by 25 basis points and could signal to further rate cuts across the year.

GBP/USD forecast – technical analysis

GBP/USD has recovered from Monday’s spike lower, clawing its way to 1.2490 at the time of writing. The pair holds above a falling trendline dating back to 2007, but near term remains capped below 1.25 round number and the 50 SMA.

Buyers, supported by the RSI above 50 will need to break above 1.25 to extend gains towards the 1.26 handle, before exposing the 200 SMA at 1.2780.

On the downside, support can be seen at 1.23, the April 2024 low. A break below here brings 1.2250, the weekly low, into focus.

DAX falls on tariff worries & with PMI data in focus

• Worries about US trade tariffs are a headwind for the DAX
• German services PMI data is due
• DAX eases from record high

The DAX and its European peers are falling on Wednesday after modest gains on Tuesday as choppy trade continues. Concerns over trade tariffs against the European Union remain a headwind for the DAX.

The German automobile sector is particularly at risk from trade tariffs. Although upbeat earnings from Ferrari yesterday provided a good distraction.

As well as trade tariff woes, the market mood has soured following disappointing Alphabet earnings as it spends heavily on capex. Alphabet’s share price fell 7.6% after hours and could lead European tech stocks lower in early trade.

Today, attention will be on the finalized German services PMI, which is expected to show an increase of 52.5 in January, up from 51.2. A rise in service activity and higher input prices could temper aggressive ECB rate cut expectations. The prospect of higher borrowing costs could put pressure on stocks. However, a downward revision could have the opposite impact.

In the US session, ADP payrolls and US ISM services PMI data will be the focus. Strong data could lower Fed rate cut expectations and drag on stocks.

DAX forecast - technical analysis

After running into resistance at 21795, a record high last week, the price has corrected lower, falling back to 21,500 and into its rising channel. This move has pulled the RSI out of overbought territory.

The uptrend remains intact and buyers could be encouraged by the long lower wicks on Monday’s candle. Buyers will look to rise back up towards 21,795 and fresh record highs.

Support is at 21k, Monday’s low. Below here 20,500 comes into play.