Two trades to watch: GBP/USD, DAX

Close-up of market chart
Fiona Cincotta
By :  ,  Market Analyst

GBP/USD rises ahead of BoE’s Bailey

GBP/USD is pushing higher, extending gains from last week. The pair rallied over 1% amid rising bets that the Federal Reserve could slow the pace of rate hikes and after stronger-than-forecast UK GDP data.

The UK economy unexpectedly grew in November, rising 0.1% MoM, ahead of the -0.2% contraction forecasts. The stronger-than-expected performance raises the chances of more rate hikes from the BoE.

Today attention shifts to a speech from BoE Andrew Bailey, who could provide further clues about the future direction of rate hikes.

With inflation still in double digits, the BoE is expected to hike rates by 50 basis points at the February 2nd meeting.

This week is a busy week for the pound, with unemployment, inflation, and retail sales data due to be released.

The USD fell last week as inflation continued to cool. Today the US stock market is closed in observance of Martin Luther King Day, so trading in the USD could be slow.

Where next for GBP/USD?

GBP/USD is extending its recovery from 1.1840, the 2023 low and has risen above its 50, 100 & 200 sma. This, combined with the RSI above 50, keeps buyers hopeful of further gains.

Buyers could look to rise above 1.2290, the weekly high, to bring 1.2450, the December high, into focus.

Meanwhile, support can be seen at 1.21, the 200 sma. A fall below here could open the door to 1.20, the psychological level and 1.1840, the 2023 low. A fall below here creates a lower low.

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DAX rises as data points to falling inflation

The DAX is set to rise on the open, adding to gains of over 3% last week. The German index has risen sharply from its 2023 low, boosted by falling gas prices, China reopening its economy, and expectations that the Federal Reserve will act with restraint, slowing the pace of rate hikes in the coming FOMC meetings.

Today, the German wholesale price index fell by more than expected to 12.8% YoY in December, down from 14.9% in November and below forecasts of 13%.

The data adds to mounting evidence that inflation in the eurozone’s largest economy is cooling.

With the US stock markets closed for Martin Luther King Day, trading could be slower than usual in the afternoon session.

Where next for the DAX?

The DAX is trading within an ascending channel dating back to early November. The index rebounded off the lower band of the channel at the end of last year and has powered higher, taking out key resistance levels.

The RSI is in overbought territory, so buyers should be cautious.

Resistance can be seen at 15300, the upper band of the rising channel, ahead of 15765, the February high.

On the downside, support can be seen at 14930, the March high, ahead of 14680, the December high. However, it would take a move below 13850 to create a lower low.

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Related tags: GBP/USD Dax Trade Ideas

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