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GBP/USD, DAX Outlook: Two Trades to Watch

Article By: ,  Senior Market Analyst
June 28, 2023 8:34 AM

GBP/USD falls ahead of BoE’s Andrew Bailey & Fed Chair Powell

  • BoE Bailey’s speech will eyed for further clues over monetary policy
  • US Fed Powell speaks after strong data yesterday
  • GBP/USD struggles 1.2730

GBP/USD is falling towards 1.2730 ahead of the European open, reversing small gains from the previous day amid UK recession worries and ahead of a speech by BoE Governor Andrew Bailey and Chief Economist Huw Pill.

Andrew Bailey and Huw Pill both will speak at the European Central Banking Forum in Sinatra, where traders will be looking for any clues over the future path of monetary policy following last week's surprise 50 basis point rate hike.

Their appearance comes as recession fears grow in the UK and UK's two-year gilts jumped to the highest level in 15 years. While economists expect the Bank of England to raise interest rates to a peak level of 5.5% the markets are pricing in a much higher rate of over 6.25%, which would put the UK economy into recession.

The latest UK house price data from Zoopla also makes for worrying reading and could be pointing to the start of a downturn in the property market. The data shows that almost 50% of home sellers were forced to cut their asking prices by over 5%. Writing morbid costs are hitting the spending power of perspective buyers.

Meanwhile, the US dollar is easing after strong gains yesterday, after stronger than expected data calms recession fears. U.S. consumer confidence, durable goods orders, and house data all beat forecasts by significant margins.

Today the US economic calendar is quiet, attention will be on Federal Reserve chair Jerome Powell who is expected to speak today at the ECB Central Bankers Forum. Investors will be looking for clarity over the future path of monetary policy after fed power indicated that two more rate hikes would be appropriate this year.

GBP/USD outlook – technical analysis

After hitting a YTD high last week, GBP/USD eased lower, finding support at 1.2680, the May high, which is the level that sellers will need to break below in order to test the 20 sma at 1.2625 and extend the selloff towards 1.2545 the 50 sma.

Meanwhile, buyers, supported by the RSI above 50, will look to rise above 1.2850, 2023 high to create a higher high and bringing 1.30 into target.

 

 

 

DAX rises after strong US data eases recession fears

  • Upbeat US data yesterday boosted Wall Street
  • German consumer confidence unexpectedly fell to -25.5
  • DAX tests rising trendline resistance

The DAX is pointing to a higher open, extending gains from yesterday and tracking a strong session on Wall Street overnight after upbeat US data.

US consumer confidence surged to 109.7 in June, well ahead of forecasts, durable goods jumped 1.7% MoM, and housing data also beat estimates. The stronger data overshadowed recession fears on expectations that interest rates will be higher for longer.

Investors are shrugging off an unexpected decline in German consumer confidence ahead of central bank speakers later today.

GFK consumer confidence is set to fall to -25.4 in July after falling to -24.4 in June and defying expectations of a rise to -23. Consumer confidence remains below the Spring 2020 lows after the first Covid lockdown. Consumer sentiment worsened for the first time in nine months on a gloomier outlook, reflecting an uncertain outlook for consumer spending.

The data, combined with a second straight monthly decline in IFO business climate data earlier in the week and a softer composite PMI reading, which dipped below 50, points to a prolonged recession in the eurozone’s largest economy.

ECB President Christine Lagarde, as well as Federal Reserve chair Jerome Powell, are both due to speak at the ECB central bankers forum in Sinatra, Portugal, later today. Hawkish commentary could weigh on stocks.

Elsewhere Chinese industrial profits fell sharply in May, dropping 12.4% YoY. However, the market is optimistic of further stimulus from Beijing.

DAX outlook – technical analysis

After falling out below its multi-month ascending trendline, the DAX found support on the 100 sma at 15700.  

The price trades caught between the 100 sma limiting the downside, while 16030 caps the upside, the rising trendline support, and the 20 sma. A rise above 16030 opens the door to 16430, the 2023 high.

Sellers will be looking for a move below 15700 to create a lower low and open the door to 15250, the mid-February low.

 

 

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