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GBP/USD, DAX Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
Thursday 9:28 AM

GBP/USD trades at a monthly low ahead of US CPI

  • US CPI is expected to ease to 2.3% o from 2.5%
  • Fed minutes point to a gradual pace of rate cuts
  • GBP/USD would turn bearish below 1.30

GBP/USD is inching higher after yesterday's losses as the rally in the US dollar pauses for breath ahead of US inflation figures.

The U.S. dollar hovers around an almost two-month high against its major peers as the market ha grown more confident that the Fed would adopt a patient approach to cutting interest rates.

All eyes are on US CPI data, which is expected to show that inflation eased to 2.3%, down from 2.5%, and core inflation held steady at 3.2%. The data comes following the unexpectedly strong payroll date last week and after minutes from the September Fed meeting pointed to a steady approach to rate cuts.

However, an upside surprise in US inflation could force the Feds to rethink their path for interest rates. That said, San Francisco Fed president Mary Daly said yesterday she was less concerned about inflation and more so about hurting the labor market.

The market is pricing an 80% probability of the Fed cutting rates by 25 basis points at the beginning of November against the 20% probability that the central bank will leave rates unchanged.

Meanwhile, the pound is drifting amid a quiet week for economic data. Sterling fell away from its 2024 high at the beginning of October following more dovish comments from Bank of England governor Andrew Bailey he suggested that the central bank may adopt a more aggressive approach to interest rate cuts should inflation data allow it.

GBP/USD forecast – technical analysis

GBP/USD has trended higher since May, forming a series of higher highs and lower lows. The price ran into resistance at 1.34 and has corrected lower, falling below 1.3260, the August high, and has slipped below the 50 SMA.

Sellers will need to break below 1.30 to negate the uptrend, which brings the rising trendline support at 1.2880 into focus.

Should buyers rise above the 50 SMA, a rise back up towards 1.3260 could be on the cards. A rose above here opens the door to 1.34.

DAX falls despite a rebound in retail sales & ahead of US CPI data

  • US CPI data to ease to 2.3% YoY
  • German retail sales rose 1.6% MoM in August
  • DAX trades caught between 19k to 19.5k

The DAX is heading lower after solid gains yesterday amid stronger-than-expected German retail sales and ahead of US inflation figures.

The market mood is cautious across the board ahead of US inflation data, which is due later today. The data is expected to show that headline inflation eased on an annual basis to its lowest level since March 2021, which could allow the Fed to continue lowering borrowing costs.

The caution overshadows stronger-than-expected German retail sales data. German retail sales rebounded in August, adding to a 1.5% increase in July and pointing to solid consumption trends despite weakness in the manufacturing sector.

Private consumption contributes to over 50% of the German economy, meaning that the increase in retail sales was significant.

The positive trend contrasts with expectations of a deteriorating economic outlook for the eurozone's largest economy this year. The government forecast the economy will contract by 0.2% in 2024 after shrinking by 0.3% in 2023.

Looking ahead, attention will also be on the minutes of the September ECB meeting, which investors will scrutinize for further clues about the ECB's next moves and outlook for the eurozone economy. The ECB cut rates by 25 basis points at the September meeting and is expected to cut rates by a further 25 basis points at the meeting this month.

DAX forecast – technical analysis

DAX continues to trade above its rising trendline dating back to August 5. The price is caught between the record high at 19500 on the upside and 19,000 on the downside.

Buyers will need to rise above 19500 to reach fresh all-time highs.

Sellers would need to break below 19000 to negate the near-term uptrend and bring 18500, the 50 SMA, into focus.

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