GBP/USD, DAX Forecast: Two trades to watch

GBP/USD unmoved as traders shrug off wage data

• UK unemployment rises to 4.3% from 4.2%
• UK wage growth remains sticky at 5.7%
• GBP/USD tests 200 SMA resistance at 1.2540

The pound is unchanged after UK jobs data tentatively supports a rate cut from the BoE in the coming months.

Unemployment rose to 4.3%, its highest level since last summer, while wage growth excluding bonuses was unchanged. Wage growth, including bonuses, came in at 5.9%, which was less than the 6% the Bank of England had forecast.

The figures suggest that the labour market is still heading in the right direction for the Bank of England to start cutting interest rates from the 16-year high, potentially as soon as June, as inflationary pressures continue to subside.

Despite wage growth excluding bonuses remaining unchanged at 5.7% above the 5.5% expected, money markets still hold rate cut expectations at a 50% probability of a 25-basis point cut next month and are pricing into 25 basis point cuts by the end of the year.

The number of people in work fell by 178,000 in the first quarter, and pay-rolled employment fell by 85,000, marking the largest drop since May 2020 when the UK was in lockdown.

Attention will be on UK inflation data next week, which is expected to show inflation falling closer to the 2% target and could be the deciding factor as to whether the Bank of England cuts rates next month or not.

Meanwhile, the US dollar is holding steady in quiet trade ahead of US PPI data today and CPI figures tomorrow. The inflation prints will provide more clues about when the Federal Reserve may start to cut interest rates.

Sticky inflation over the first quarter and hawkish comments from Federal Reserve officials advocating high rates for longer have supported the US dollar. However, more recently, weaker-than-expected US non-farm payrolls and rising jobless claims have supported the view that the Fed may start to cut interest rates as soon as September.

The market will be looking at these inflation prints for further clarity over the timing and possible scale of Fed rate cuts. The market is pricing in a 63% probability of at least a 25 basis point rate cut in September.

GBP/USD forecast – technical analysis

GBP/USD has risen above the falling trendline resistance and is testing the 200 SMA around 1.2540. This, combined with the RSI above 50, keeps buyers hopeful of further gains.

Buyers will need to rise meaningfully above the 200 SMA to extend gains towards 1.2630, the May high. A rise above here opens the door to 1.27.

Failure to rise above the 200 SMA could see the price test support at 1.25, the falling trendline support. Below here, 1.2450, the May low comes into play, and 1.24 round number.

DAX eases from record high ahead of German ZEW economic sentiment & US PPI

• German inflation confirmed 2.2% YoY
• ZEW economic sentiment is expected to rise to 46.3 from 42.9
• US PPI forecast at 2.2% YoY in April vs 2.1% in March
• DAX eases back from 18848

The DAX is easing off its record high reached on Friday as investors look cautiously ahead to Germany's ZEW economic sentiment, US inflation data, and a speech by Fed Chair Jerome Powell.

The DAX has risen to record levels, boosted by optimism that the ECB will start cutting interest rates in June and recent data from the region pointing to an economic recovery.

Today, German CPI data reconfirmed the preliminary reading of 2.2%, supporting the view that the ECB is on track to cut rates next month. Meanwhile, the ZEW economic sentiment gauge is expected to rise again in May to 46.3, up from 42.9 in April, boosted by the optimism of a rate cut and amid signs of an improving economy in China.

Meanwhile, PPI data will influence sentiment later in the US session ahead of CPI data tomorrow. Hotter, the expected inflation could unnerve investors and stall the recent rally.

Meanwhile, comments by Federal Reserve chair Jerome Powell will also be closely watched for any clues about when the Fed may start to cut rates. A dovish-sounding Powell could lift the market further.

DAX forecast – technical analysis

DAX is easing back from 18848, ATH, testing the multi-month rising trendline support and bringing the RSI out of overbought territory. Below here, support is seen at 18635, the April high. It would take a break below 18650 to negate the near-term uptrend and a break below 17800 to create a lower low.

Meanwhile, buyers will look to re-take 18848 to reach fresh all-time highs.