GBP/USD, EUR/USD Forecast: Two Trades to Watch

GBP/USD tumbles ahead of Powell’s speech

• BoE peak rates expectations fall after weak data
• USD rallies ahead of Powell’s speech
• GBP/USD breaks below 1.2615 key support

GBP/USD has fallen below 1.26  to its lowest level since June. The pair has fallen sharply on USD strength after the first day of the Jackson Hole Central Bankers’ forum, on jitters ahead of Fed Chair Powell’s speech and despite UK consumer confidence improving.

UK consumer confidence rose to -25, up from -30 and ahead of the -29 forecast. The gauge posted its biggest jump since April but the good news has failed to boost GBP. Weaker than-forecast retail sales last week and dismal PMI this week have raised concerns over the health of the UK economy and recession fears. e market h

Analysts have reined in BoE peak rates level to 5.5% from 5.75% earlier in the month owing to the weak data and rising recession fears.

The USD trades at a three-month high against a basket of currencies ahead of Powell, who is unlikely to suggest that the Fed’s mission has been accomplished. Any investors looking for reassurance that US interest rates have peaked will likely be disappointed.

Instead, Powell is likely to reiterate the Fed’s commitment to bringing down inflation, leaving the door open for further rate hikes over the coming months should inflationary pressures remain.

Powell’s speech comes after several policymakers spoke on Thursday who agreed that peak rates is close but differed on how close. Boston Fed President Susan Collins warned that more hikes might be needed given that the US economy has not slowed enough to bring inflation back to 2%.

GBP/USD forecast – technical analysis

GBP/USD has broken below a key support at 1.2615, which along with the RSI below 50 keeps sellers hopeful of further downside.

The breakdown of the support opens the door to support at 1.2550, the April and June 1^st high, before exposing the 200 sma and 1.23, the May low.

On the upside, should buyers rise above 1.2615, the falling trendline resistance at 1.2750 comes into play ahead of 1.28 the weekly high.

EUR/USD looks to Powell, Lagarde speeches for clues over policy

• Will Powell’s speech be more hawkish than Lagarde’s?
• German IFO business climate data to fall to 86.7
• EUR/USD tests 200 sma

EUR/USD is falling for a second straight day, falling to a 2.5-month low  as investors brace themselves for speeches from Fed Chair Powell and ECB President Christine Lagarde.

This will be the first speech from Lagarde since the PMI data painted a worrisome outlook for the region’s economy. The speech also comes as the eurozone economy is in a comparably worse shape than the US economy. US concerns appear more hawkish, while recession worries dominate for the eurozone.

ECB policymaker Boris Vujcic said earlier today that inflation in the region has most likely peaked. He also highlighted the stagnant economy and data dependency to defend a wait-and-see approach.  This was in contrast to more hawkish sounds coming from the Fed camp after Fed officials Susan Collins and James Bullard sounded hawkish in their speeches.

On the data front, German Q2 GDP confirmed 0% growth QoQ after -0.1% contraction in Q1.

German IFO business climate is expected to fall to 86.7 in August from 87.3. Weak business climate data could fuel prolonged recession fears in the eurozone’s largest economy.

EUR/USD forecast – technical analysis

EUR/USD trades within a falling channel dating back to mid-July. The price is testing the 200 sma support and the rising trendline support dating back to November last year. The RSI supports further downside while it remains out of oversold territory.

A close below the 200 sma could be significant, opening the door to a deeper selloff towards 1.07 round number ahead of 1.0630, the May 31 low.

Should the 200 sma hold, buyers could look for a rise towards 1.0930, the confluence of the upper band of the falling channel and the 100 sma.