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

Multiple pound notes £5, £20 and £50 Pound Sterling
Fiona Cincotta
By :  ,  Senior Market Analyst

GBP/USD rises as UK GDP returns to growth, US CPI is due

  • UK GDP rises 0.2% MoM in August up from -0.6% in July
  • The outlook remains sluggish after 14 straight rate hikes
  • GBP/USD testing resistance at 1.2310

GBP/USD is pushing higher for a third straight day as investors digest the UK's GDP data and look ahead to US inflation figures.

The UK economy grew by 0.2% MoM in August following a downwardly revised 0.6% contraction in July after wet weather and strikes hit economic output. The sluggish growth reinforces the picture of an economy that is losing steam in the face of 14 straight interest rate hikes from the Bank of England, hurting consumer spending and making it more expensive for businesses to invest.

Looking ahead, the outlook remains weak, with key PMI indices for September still flashing warning signs and signals that the labour market is starting to cool. Furthermore, given the lag time for interest rate hikes to work their way through the UK real economy, the outlook for the second half of the year remains sluggish.

Meanwhile, USD is falling versus its major peers on hopes that the Federal Reserve is nearing a dovish pivot. US inflation data is in focus and is expected to cool to 3.6%YoY from 3.7%.

GBP/USD forecast – technical analysis

GBP/USD has extended its recovery from 1.2040, the October low, rising above the 20 sma, and is testing resistance around 1.2310, the May low. The bullish crossover on the MACD supports further upside.

Buyers need to move meaningfully above 1.2310 to extend the rise above 1.2340, the weekly high, and 1.2365 the falling trendline resistance to expose the 200 sma at 1.2450.

Should sellers successfully defend the 1.2310 resistance, support can be seen at 1.2240, the 20 sma, ahead of 1.22, the round number.

gbp/usd forecast chart

EUR/USD rises ahead of ECB meeting minutes & US inflation

  • US inflation is expected to cool to 3.6% YoY from 3.7%
  • ECB minutes of the September meeting could fuel dovish bets
  • EUR/USD is testing resistance at 1.0630

The EUR/USD is pushing higher again for a third straight day thanks to ongoing U.S. dollar weakness. The US dollar index, which measures the greenback against six major currency pairs is falling for a fourth consecutive session as investors look ahead to U.S. consumer inflation data.

Inflation is expected to cool to 3.6% YoY in September, down from 3.7% in August. Meanwhile, core inflation which strips out more volatile items such as food and fuel, is expected to cool to 4.1% YoY from 4.3%.

The data comes after the minutes of the latest FOMC meeting showed that policymakers are cautious about deciding whether to raise interest rates again this year. Recent Fed speakers have also adopted a more dovish stance, with some raising questions over whether another rate hike is needed given uncertainties in the economic outlook. Other fed speakers also pointed towards high U.S. Treasury yields which have created tighter financial conditions.

Cooler than expected US inflation figures could feel bets that the Fed has ended its rate hiking cycle and pull the USD lower.

The EUR has been pushing higher, capitalizing on USD weakness ahead of the release of the ECB minutes of the September meeting. In this meeting, the ECB raised interest rates to 4% but hinted that was the end of the right hiking cycle. Recent ECB members have also supported the view that the central bank is at the end of its rate-hiking cycle.

The eurozone economic calendar is quiet today. ECB president Christine Lagarde will be attending the G20 finance ministers and central bankers meeting. Any comments she makes regarding the economic outlook or inflation could influence the euro.

EUR/USD forecast- technical analysis

EUR/USD has extended its recovery from 1.0450, the October low, rising above the 20 sma, and is testing resistance at 1.0630, the May low, and the falling trendline resistance. The bullish crossover on the MACD keeps buyers hopeful of further gains.

A rise above 1.0630 exposes the 50 sma at 1.0750 and the mid-September high of 1.0765.

Failure to rise above 1.0630 could see sellers look to trest the 20 sma at 1.0590 and 1.05 round number.

eur/usd forecast chart


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