GBP/USD, DAX Forecast: Two Trades to Watch

GBP/USD falls for a third day as economic worries rise, PMI data is due

• BoE left rates unchanged at 5.25%
• UK Services PMI to fall to 49.2
• Retail sales rise by less than expected at 0.4%
• GBP/USD is in oversold territory

GBP/USD is falling for a third straight session as investors continue to digest the Bank of England's unexpected rate decision and ahead of PMI data.

The BoE surprised the market by leaving interest rates on hold at 5.25% yesterday in a knife-edge decision after UK inflation unexpectedly cooled to 6.7% in August. There was no press conference - the statement suggested that the central bank was comfortable that inflation was cooling.

Instead, the central bank could be growing increasingly concerned about the economic outlook for the UK economy amid mounting signs that the UK could be heading for a downturn in the second half of the year.

Those concerns could be highlighted today with the release of PMI data, which is expected to show that the UK services sector contracted at a faster pace in September, falling to 49.2 from 49.5. Meanwhile, the manufacturing PMI is expected to hold steady at 43. The data could confirm that the UK economy is heading for a contraction this quarter.

UK retail sales rose in August by less than expected, increasing by 0.4% MoM after falling 1.1% in July the data comes as UK consumer confidence unexpectedly improved.

Meanwhile, the US dollar is pushing higher again as it tracks yields northwards. The greenback is on track to book its 10th straight weekly rise, a rally of this magnitude hasn’t been seen in over a decade.

The USD has been boosted by expectations that the Federal Reserve intends to raise interest rates again before the end of the year and projected less easing next year. Stronger than expected US jobless claims also helped to underpin the greenback.

Attention now turns to US PMI data which is expected to show that business activity held above 50 indicating expansion.

GBP/USD forecast – technical analysis

GBP/USD has fallen below its 200 sma and below 1.23 the May low, before finding support at 1.2235. The RSI is in overbought territory so sellers should be cautious, a rise or at least a period of consolidation on the cards.

Sellers will look to break below 1.2235 to extend the selloff. There is little in the way of support until 1.20 the psychological level.

On the upside, buyers could look for a rise above 1.23, the May low to expose the 200 sma at 1.2440.

DAX struggles ahead of PMI data

• DAX is set to fall across the week
• Economic worries in focus ahead of PMI data
• DAX tests 15465 a key support

The DAX is pointing to a weaker start, extending losses from the previous session, and is on track to book a 2% loss across the week.

Concerns over the health of the German economy and one of its main trading partners, China, as well as the prospect of higher interest rates for longer amid soaring yields in the US, is keeping the market mood depressed.

Attention is turning to German and eurozone PMI data for September, which are expected to show that manufacturing and the service sector activity contracted further this month.

Expectations are for the German services PMI to fall to 47.2 from 47.3 and the manufacturing PMI to rise from 39.1 to 39.5. PMIs for the eurozone are expected to follow a similar trend, with the services PMI falling to 47.7 from 47.9 and the manufacturing PMI rising modestly to 44 from 43.5. The figure 50 separates expansion from contraction. Weak data could fuel concerns over a recession in the second half of the year.

The data comes after figures yesterday showed that eurozone consumer confidence deteriorated further in September as households dealt with ten straight interest rate hikes from the ECB.

Meanwhile, a more hawkish-sounding Federal Reserve and the prospect of higher interest rates for longer impacted risk sentiment across the board. Weaker than expected PMI data could hit the market mood further.

DAX forecast – technical analysis

The DAX has fallen below the 200 sma and is testing a key support at 15465, the August and July low. The RSI supports further downside.

A break below this level opens the door to 15275, and 15000 the psychological level.

Meanwhile, buyers could look for a rise over the 200 sma at 15575, with a rise above here opening the door to 15760 the 20 sma and 15993 last week’s high.