DAX is subdued ahead of the ECB rate decision
- ECB decision is a knife-edge decision
- Weak growth and higher inflation pose a challenge
- DAX trades below falling trendline & could test 200 sma
The DAX is set for a quiet open after modest losses in the previous session and as investors look ahead to the ECB interest rate decision.
This is a cliffhanger meeting with economists and the market alike undecided over whether the ECB will deliver a tenth straight rate hike or opt to pause its rate hiking cycle.
Updated projections for the region will offer the most crucial insight as to whether the central bank will pause the hiking cycle or lift rates to a record 4%.
On the one hand, inflation remains elevated still 2.5 times the ECB's target level. Rumours have also swirled this week that the central bank expects inflation to remain above 3% next year.
Meanwhile, the growth outlook for the region is deteriorating rapidly. The European Commission downwardly revised GDP forecasts for this year and next. The ECB's updated projections could show weaker growth.
ECB President Christine Lagarde has given away a few clues over what to expect from the September meeting in recent speeches. However, some policymakers, have supported another hike. The Dutch governor Klass Knot said he thought markets were underestimating the likelihood of another interest rate hike. on the other hand, some are concerned about hiking further. Portuguese Mario Centeno said that another rise in borrowing costs would imperil Europe's struggling economy.
Given the high levels of uncertainty surrounding the meeting, the decision could inject volatility. Another hike in interest rates is likely to send stocks sharply lower.
Dax forecast- technical analysis
The DAX continues to trade below the falling trendline dating back to the end of July. The price found support just above the 200 sma at 15560 yesterday, which is now the level that sellers need to break below in order to extend the bearish trend to wards15466, the August low, and beyond.
Should the support hold, buyers will look to rise above the 20 sma at 15750 and 15815, the falling trend line resistance.
GBP/USD holds steady ahead of US data drop
- BoE could still raise rates despite weak GDP data
- US retail sales, PPI and jobless claims data due
- GBP/USD tests 200 sma
GBP/USD Is edging a few pips higher after finishing flat in a previous session, as investors continue to out the possibility of another rate hike from the BoE and as investors look ahead to more U.S. economic data later today.
Weaker-than-expected UK GDP data yesterday clouded the picture further over the BoE’s next move. While the UK economy is showing signs of slowing and points to a possible recession this year, wage growth remains strong and ahead of inflation, pointing to a pick-up in consumption.
Meanwhile, the US dollar is slipping against its major peers after inflation data painted a mixed picture. While headline inflation pushed higher for a second straight month, core inflation continued to cool. The data supports the view that the Federal Reserve won't raise interest rates next week. However, sticky inflation means that the door remains open for another hike before the end of the year.
Looking ahead, US PPI is expected to rise 0.4% MoM in August, up from 0.3%, and retail sales are set to rise at 0.2%, down from 0.7% in July. Finally, jobless claims, which fell to the lowest level since February in the previous week, are expected to rise to 225k.
Stronger-than-expected jobless claims, retail sales, and wholesale inflation could fuel bets of a November rate hike and lift the dollar.
GBP/USD forecast – technical analysis
GBP/USD trades below its multi-month falling trendline and tested the 200 sma in the previous session. The RSI supports further downside.
Sellers will need to break below the 200 sma at 1.2430 in order to extend the selloff towards 1.2390 the May low.
Resistance can be seen at 1.2550, the weekly high ahead of 1.26 the 20 sma.