GBP/USD, DAX Forecast: Two trades to watch

GBP/USD falls ahead of BoE Bailey & Fed Chair Powell’s speeches

• USD rises for a third day after mixed Fed messages
• UK grocery inflation falls below 10% for the first time in 16 months
• GBP/USD tests 50 sma

GBP/USD is falling lower for a third straight day as USD strengthened as investors look ahead to speeches from both Bank of England governor Andrew Bailey and the Federal Reserve chair Jerome Powell.

USD has pushed higher against its major peers in recent days after mixed messages from the Federal Reserve.

After the FOMC meeting last week and softer than expected US non-farm payrolls, the market was betting that the Fed was done hiking rates. However, Fed speakers this week have adopted a more hawkish tone, with Governor Michelle Bowman and Minneapolis Fed President Neel Kashkari suggesting that the Fed may need to hike rates further due to sticky inflation and the resilience of the US economy.

All eyes will be on Federal Reserve chair Jerome Powell’s speech for further clues over the future path of interest rates. A hawkish-sounding Powell could lift the US dollar further.

Meanwhile, Bank of England governor Andrew Bailey will speak this morning. His speech comes as signs are emerging that UK inflation is cooling after grocery inflation fell below 10% for the first time in 16 months. This should bring some well-needed relief to pressurised consumers.

Last week, the BoE left interest rates unchanged and hinted that they may be at the end of the hiking cycle; however, the central bank also showed its intentions to keep rates high for longer. With the UK economy in danger of being tipped into recession, the Bank of England may need to cut rates sooner than initially planned.

GBP/USD forecast – technical analysis

GBP/USD’s breakout ran into resistance at the 200 sma at 1.2435 and has rebounded lower, falling below support at 1.2340 and is testing the 50 sma at 1.2285. A break below here exposes the 20 sma at 1.22 and 1.2170 the falling trendline resistance.

On the upside, should buyers successfully defend the 50 sma, resistance can be seen at 1.2340 ahead of the 200sma. A rise above here would create a higher high.

DAX falls ahead of German inflation & retail sales data & as after Commerzbank, Adidas earnings

• German inflation forecast to fall to 3.8% YoY from 4.5%
• Eurozone retail sales are set to fall -0.2% MoM after falling -1.2% in August
• DAX fails at the falling trendline resistance, easing lower

The DAX and its European peers are heading for a weaker open extending modest losses from the previous session.

The DAX closed lower yesterday after German industrial production showed a steeper fall than expected, dropping by -1.1%, significantly more than the 0.1% fall that was forecast. The data aligns with weak manufacturing PMI data, which suggests that the sector is acting as a drag on the eurozone's largest economy.

Eurozone producer prices also fell steeply, dropping -12.4% YoY in September after falling -11.5% in August, pointing to a weak demand environment.

Looking ahead, economic data will remain in focus with the release of German inflation figures, the final reading for October. Inflation is expected to cool to 3.8%, down from 4.5%. Inflation is seen cooling as the German economy stalls and looks likely to fall into recession in the second half of the year.

Meanwhile, eurozone retail sales will also be under the spotlight and are expected to decline by 0.2% in September after falling -1.2% in August as consumers struggle amid record interest rates and still high inflation. Weaker than forecast retail sales could also raise concerns that the region is heading for a recession.

Meanwhile, corporate earnings will continue to provide direction for the German index, with Commerzbank and Adidas among other releasing figures today.

Commerzbank saw net profits more than triple in Q3, posting better than expected profits of €684 million, almost triple what they were a year earlier thanks to higher interest. The bank also presented a strategy update saying it would reduce the cost-to-income ratio to 55% by 2027 and aim for a net profit to around €3.4 billion that year.

Adidas saw gross margins for the quarter rise 0.2% to 49.3%, supported by lower freight costs and fewer discounts. Inventory levels fell 23% yearly to €4.85 billion, slightly more than expected. US retailers, particularly, have been struggling with excess stocks of clothes and footwear. On a currency-neutral basis revenue increased 1% while in euro terms, the company's revenue declined 6% to €5.99 billion.

DAX forecast technical analysis

The DAX’s recovery from 14600 failed at the falling trendline dating back to mid-July. The price now trades caught between the falling trendline and the 20 sma just above 15000. The RSI is neutral.

Sellers will look to break below the 20 sma and the 15000 psychological level to extend the bearish move towards 14600.

Buyers will need to rise above 15270, the November high to extend gains towards 15500.