GBP/USD, EUR/USD Forecast: Two trades to watch

GBP/USD edges higher after UK jobs data is slightly stronger than expected

• UK unemployment is 4.2%, down from 4.3%
• UK and US PMI data are expected to show a contraction.
• GBP/USD trades at a 12 day high & tests falling trendline resistance

GBP USD is rising after the latest UK jobs data. The data showed that the UK jobs market held up better than expected despite aggressive hikes from the Bank of England.

According to the Office of National Statistics, unemployment rose 4.2% in the three months to August, down from 4.3% in the previous quarter; however, a new methodology was used, with the new data points being treated as experimental by the ONS.

Still, some signs of weakness are seeping into the labour market as job vacancies continue to fall across many sectors. The number of jobs on offer fell by 43,000, with 988,000 vacancies available from July to September.

The data comes after figures last week revealed that wage growth was slightly slower in the three months to August than the record level seen in the previous month.

Attention will now be turning to PMI data, which is due shortly and is expected to show that the services PMI remains steady at 49.3 in October, which is below the 50 level that separates expansion from contraction. This figure will be watched closely because the service sector accounts for over 80% of the UK economy. Meanwhile, manufacturing PMI is expected to rise modestly to 44.7 from 44.3.

Meanwhile, the US dollar is falling as treasury yields pull away from the 5% level briefly reached yesterday and as investors look ahead to a busy few days on the US economic calendar.

Today, the focus is on US PMI data, where the service sector is expected to slip into contraction in October, falling from 50.1 to 49.9. Meanwhile, manufacturing activity is also expected to contract at a faster pace of 49.5 from 49.8. Weaker-than-expected data could pull the US dollar lower.

The data comes ahead of US Q3 GDP figures tomorrow, a speech by Federal Reserve chair Jerome Powell, and US inflation figures on Friday, which should provide some clues about the future path for US interest rate hikes.

GBP/USD forecast – technical analysis

GBP/USD has extended its rebound from 1.2090, rising above the 20 sma, and is testing the multi-month falling trendline resistance at 1.2260. Buyers need to rise meaningfully above here to test 1.2330 the October high, in order to create a higher high. Above here, the 50 sma comes into play at 1.2390.

Should sellers successfully defend the falling trendline resistance, support can be seen at the 20 sma at 1.2190, ahead of 1.2090, last week’s low, and 1.2040 the October low.

EUR/USD falls as eurozone business activity drops to a 3-year low

• Eurozone composite PMI falls to 46.5 in October
• Christine Lagarde is due to speak
• EUR/USD struggles below the 50 sma

EUR/USD is falling lower after the latest eurozone PMI data suggests that the economy is heading for a broad-based downturn. The composite PMI fell to 46.5 in October, down from 47.2 in September, hitting its lowest level since November 2020. Removing the COVID-19 pandemic months, it was the lowest level since March 2013.

The level 50 separates expansion from contraction, and the reading was much worse than the rise to 47.4 that was expected, suggesting that the eurozone economy is moving from bad to worse and a mild recession in the second half of the year is looking increasingly likely.

Delving deeper into the figures, Germany’s business activity slumped sharply with the composite PMI falling to 45.8 in October from September's 46.4, indicating that a recession could be well underway in the eurozone's largest economy.

The data comes ahead of a speech by ECB President Christine Lagarde later today and the ECB rate decision on Thursday.

This data also highlights the contrast with the US economy. Last week, Federal Reserve Jerome Powell pointed to U.S. economic resilience and the tight labour market as reasons why the central bank might need to keep interest rates higher for longer.

Later today, attention will be on US PMI data after the composite PMI remained in expansionary territory in September. US Q3 GDP figures are also due tomorrow, and a speech by Federal Reserve chair Jerome Powell, where he could shed more light on the future path for interest rates.

EUR/USD forecast – technical analysis

EUR/USD has extended its recovery from 1.0495, last week’s low, rising above the 20 sma and the falling trendline dating back to mid-July, which, combined with the RSI above 50 keeps buyers hopeful of further gains.

The price needs to rise above resistance at the 50 sma at 1.0685, with a rise above here opening the door to 1.0770 the mid-September high.

Failure to rise above the 50 sma could see the price test support at 1.0640, last week’s high, ahead of 1.0570 the weekly low and the 20 sma at 1.0560. Below here 1.0495 comes back into play.