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EUR/USD, GBP/USD Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
Today 9:30 AM

EUR/USD falls ahead of the ECB rate decision

  • ECB is expected to cut rates by 25 basis points
  • The focus will be on guidance
  • EUR/USD falls below the 200 SMA

EUR/USD is falling for a fourth straight day ahead of the ECB interest rate decision. The central bank is expected to cut interest rates by 25 basis points, bringing the deposit rate to 3.25%. This will mark the third interest rate cut since the central bank started reducing rates in June and the first back-to-back rate cut by the central bank since 2013.

With inflation now below the 2% target for the first time since 2021 and a deteriorating economic outlook, the central bank appears to be ramping up the pace of rate cuts.

Given that the rate cut is priced in, attention will be on the ECB's guidance, which will need to be dovish to pull the euro lower. The market is expecting the ECB to cut rates again in December.

Meanwhile, the US dollar is trading at a 2.5-month high against its major peers on expectations that the Federal Reserve could cut interest rates at a slower pace. Given recent resilience in U.S. economic data and rising expectations that Trump will win the election in November, Trump's core policies are inflationary, which could support further USD gains.

EUR/USD forecast – technical analysis

EUR/USD formed a double top at 1.12 and rebounded lower, taking out 1.10 support and the 200 SMA. The price has steadied at 1.0850, with the RSI in overbought territory. So there could be a period of consolidation or even a move higher.

While the price remains below 1.10, sellers have control. Sellers will look to take out 1.08 and 1.0780 the August low.

Buyers will need a rise above the 200 SMA at1.0870 to extend gains towards 1.10. Above here the recent downtrend is negated.

GBP/USD falls after UK inflation data paves the way for more rate cuts

  • UK inflation paves the way for a BoE November cut
  • US rises on Trump trades & lower Fed rate cut expectations
  • GBP/USD falls below 1.30

GBP/USD Is falling, extending losses from yesterday, with the pair trading at a 2-month low, below 1.30, following yesterday's cooler-than-expected UK inflation data.

With inflation well below the Bank of England's 2% target and service sector inflation falling by the most since 2020, the Bank of England is widely expected to cut rates by 25 basis points next month and could cut rates by a further 25 basis points in December.

The UK economic calendar is quiet today, leaving investors to continue mulling over yesterday's inflation data.

The U.S. dollar is rising to a 2.5-month high versus its major pairs after recent strong data highlighted the resilience of the US economy and led investors to rein in aggressive Fed rate cut bets.

The Trump trade is also supporting the US dollar as Trump takes the lead in some polls, pointing to a possible win in the upcoming US election. Trump's policies surrounding tariffs, immigration, and taxes are inflationary and could further lower expectations for aggressive Fed cuts across the cycle.

Looking ahead, attention will be on US retail sales, which are expected to rise 0.3% after rising 0.1% in August. US jobless claims will also be in focus, and they are expected to remain at 258k, the same as last week and the highest level in a year.

GBP/USD forecast – technical analysis

After consolidating below the 50 SMA between 1.3020 and 1.31, GBP/USD broke lower, moving below 1.30 key support. Sellers supported by the break below 1.30 and the RSI below 50 will loo to extend losses to the 100 SMA at 1.2950, ahead of the rising trendline support at 1.29.

Should buyers manage to retake the 1.30 resistance, a rise above the 1.3020 -1.31 resistance zone is needed to extend gains towards 1.32.

 

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