GBP/USD, DAX Forecast: Two trades to watch

GBP/USD falls after retail sales unexpectedly decline 

• UK retail sales fall -0.3% vs 0.3% exp. 
• US housing stats due 
• GBP/USD breaks below 20 sma 

GBP/USD is heading lower as the USD steadies and after UK retail sales unexpectedly fell in October. Retail sales dropped -0.3% MoM after falling -0.9% MoM in the previous month. Expectations have been for a rise of 0.3% 

According to the ONS, sales volumes have fallen to the lowest level since the 2021 COVID lockdown as retailers report that the cost of living pressures reduced footfall and poor weather have hit them hard. 

The weaker sales come after inflation cooled by more than expected, and job vacancies fell steeply in the third quarter. Together, the data points to a UK economy that is weakening, making another rate hike from the Bank of England unlikely at this point.  

Instead, the focus is firmly on when the BOE could start cutting interest rates. The market is pricing in a 60% probability of the first cut coming in as soon as May and is pricing in almost four 25-basis point cuts between now and February 2025.  

Bank of England official David Ramsden is due to speak later today.  

Meanwhile, the US dollar is inching higher after a flat finish yesterday but is set to fall across the week after cooling inflation data fueled bets that the Federal Reserve is done hiking interest rates. 

Today, attention is on U.S. housing stats, which could provide further clues about the health of the US economy. A deteriorating housing market would add to signs of a softening economy. Weak demand for housing as interest rates sit at a 22-year high could affect consumer confidence and disposable income. 

As well as housing stats, Fed officials such as Michael Barr and Mary Daly are on the calendar to speak with any comments on the US inflation or the economic outlook quote 

GBP/USD forecast – technical analysis 

Failure at 1.25 the 100, combined with a break below the 200 SMA keeps sellers hopeful of further losses.  

Support can be seen at 1.2340 ahead of the 50SMA at 1.2250. 

Buyers will need a close above the 200 sma for buyers to gain momentum and test 1.25 again. A rise above 1.25 brings 1.26, the June low into focus. 

DAX rises ahead of eurozone inflation 

• Eurozone inflation expected to cool to 2.9% YoY from 4.3% 
• ECB President Christine Lagarde to speak 
• DAX in overbought territory 

The DAX is heading to a positive start, adding to gains in the previous session and following a mixed close on Wall Street 

The DAX is set to book gains of over 3.6% this week, marking its strongest weekly gain since late March. 

The German index has been supported by signs of cooling inflation and on optimism that central banks are at the end of their hiking cycle. Oil prices, which are set to book their 4th weekly decline, also support the view that inflation is cooling globally. 

Today, attention is on eurozone inflation data, which is expected to confirm that CPI cools to 2.9%, down from 4.3% the prior month, marking the lowest annual inflation in two years. 

ECB president Christine Lagarde is also set to speak at the European Banking Congress in Frankfurt. Her comments will be closely watched for clues over the future path for interest rates after the central bank paused its rate hiking cycle in October and hinted that it was at the end of the hiking cycle. While Christine Lagarde has previously said that the central bank won't be looking to cut rates for a few quarters, investors are focused on when the first cut may be. 

DAX forecast - technical analysis 

The DAX is extending its recovery from 14600. It has risen above its 200 sma, but the RSI has tipped into overbought territory so buyers should be cautious. 

The next hurdle for the DAX can be seen at the 16,000 psychological level and 16044 at the September high. Beyond here 16430 the June high comes into target. 

On the downside, the 200 sma at 15600 could offer support, with a break below here bringing 15500 into play and 15280 the 50 sma.