EUR/USD, FTSE 100 Forecast: Two trades to watch

EUR/USD holds above 1.16 ahead of EZ CPI data

EUR/USD is almost unchanged on Tuesday, trading above 116 at the time of writing after pulling back from two-week highs of 1/16/50 yesterday. The US dollar has recovered from lows amid a cautious market mood as investors look ahead to eurozone inflation data.

Expectations are for inflation to remain unchanged at 2.1% YoY, close to the ECB’s 2% target. Cor CPI is expected to remain at 2.4% YoY.  These figures are unlikely to change the ECB’s stance.

The ECB is expected to leave rates unchanged at its December 18 meeting, with ECB President Christine Lagarde saying policy is in a good place. The ECB could well be done with its rate-cutting cycle.

The USD has picked up from yesterday’s low, supported by the risk-off mood in the market. However, gains are likely to be limited following weak ISM manufacturing data yesterday and expectations that the Fed will cut rates next week.

US ISM manufacturing fell to 48.2 from 48.7, indicating the sector contracted at a faster pace. The employment index dropped to 44 in November from 46 in October, and the prices paid gauge rose to 58.5 from 58, underscoring weakness in the job market and the inflationary impact from trade tariffs.

The US economic calendar is quiet today, but ISM services PMI data, ADP payrolls, and core PCE data are due later in the week.

EUR/USD forecast – technical analysis

After breaking out of the descending channel, EUR/USD is trading rangebound, caught between 1.15 on the downside and 1.650 on the upside. The price trades towards the upper end of the horizontal channel and the RSI is pointing higher, keeping buyers hopeful.

Buyers will need to rise above 1.1650 to create a higher high and bring 1.17 into play. Above here, 1.1780, the October high comes into focus.

Sellers would need to break below 1.15 support level. A break below here exposes the 200 SMA at 1.1450 and 1.14, the August low.

 

FTSE 100 rises, banks gain after passing the BoE stress test

The FTSE is inching higher on Tuesday in lacklustre trade after modest losses yesterday. It has been a relatively subdued start to the week, with global themes and the aftermath of the budget in focus.

UK assets weren’t particularly interested in his resignation of Obi Archer Richard Hughes, and the overall response to the budget appears to be 1/2 fatigue with little market reaction continuing into this week.

Today, the Bank of England released its stress test results, reporting that all seven of the UK's largest lenders passed the latest test, which examines their resilience to an economic shock that worsens the financial crisis. The central bank cut its estimate of how much capital UK banks need for the first time in a decade and signaled the consultation, which could help free up extra lending and higher payouts to shareholders. Banking stocks are heading higher.

Meanwhile, an encouraging report from the OECD will help support sentiment. According to the OECD, Britain's economy will grow faster than previously expected next year, lifting its forecast to 1.2% from 1% in its previous forecast.

However, the UK private sector expects output to slide over the next three months in their gloomiest outlook since May, amid cost pressures, consumer spending, and other factors that continue to weigh on businesses.

FTSE 100 forecast - technical analysis

After running into resistance at 9930, the FTSE rebounded lower to 9435, briefly breaking below the 50 SMA. However, the price has recovered, retaking the 50 SMA and 9700.

Buyers supported by the RSI above 50 will look to extend gains to 9800 and on to 9900 and fresh record highs.

Failure to hold above the 9700 opens the door to 9575, the 50 SMA and the October 8 high. It would take a break below 9440 to create a lower low.

By Fiona Cincotta