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

GBP/USD inches higher after GDP data

UK GDP for July stalls at 0%, below 0.2% forecast
This is a blow to Labour ahead of the Budget next month
GBP/USD rises towards 1.31 but lacks conviction

The pound is little changed at 1:31 as traders digest the latest UK GDP data and prospects for monetary policy.

UK GDP stalled for a second straight month in July at 0%, which was below forecasts of 0.2%. GDP has registered no growth in three of the last four months. Meanwhile, industrial production unexpectedly contracted by 0.8%. The data suggest that a rapid recovery from last year's technical recession is losing momentum, which will be a blow to Prime Minister Sir Keir Starrmer.

While the UK economy grew at a stronger pace than its G7 peers in the first half of the year, with an expansion of 1.3%, its performance in the second half is proving significantly weaker.

Labour is counting on strong growth to repair public finances and boost living standards. However, with GDP stalling Chancellor Rachel Reeves faces potential headwinds ahead of her October 30th budget.

Data today comes after UK labour market figures yesterday showed that unemployment eased to 4.1% and Job creation was ahead of forecasts. However, wage growth excluding bonuses is the lowest in two years, and private sector pay growth, a gauge that the Central Bank of England watches closely, cooled to 4.9%, pointing to easing price pressures.

The markets anticipate a further cut to interest rates in November and potentially another move by the central bank in December.

Meanwhile, the US dollar is falling further following the Presidential election debate between Trump and Harris, which has resulted in increased uncertainty surrounding the 2024 election.

US inflation data are in focus and could help the market decide whether the Fed will opt for a 50-basis-point or 25-basis-point rate cut in the FOMC meeting next week.

GBP/USD forecast – technical analysis

After running into resistance at 1.3265, GBP/USD has fallen lower, taking out the 1.3140 July 2023 high and testing the 20 SMA around 1.31. The pair continues to trade in a rising channel, although momentum is wang.

Should support at 1.31 hold, buyers will look to extend gains towards 1.3140 and 1.32 the round number. Above here, 1.3265, the 2024 high comes back into play.

However. A meaningful move below 1.31 and 1.3050, yesterday’s low, brings 1.30 into focus. A break below here negates the near-term uptrend

EUR/USD rises after the US election debate & ahead of CPI data

Trump & Harris had a fiery clash, raising uncertainty
US CPI is expected to ease to 2.6% YoY from 2.9%
EUR/USD finds support at 1.1015

EUR/USD is rising, snapping a three-day losing streak on amid a weaker U.S. dollar following the US presidential election debate and, in a minute, cautious made ahead of US inflation figures. However, gains could be kept ahead of tomorrow's ECB rate decision.

The U.S. dollar corrected lower yesterday after her fiery debate between Republican nominee Donald Trump and Democratic candidate Kamala Harris.

The market has come away from the clash with increased uncertainty over the hotly contested 2024 election, particularly given that the two candidates have such contrasting policy outlooks.

Attention is now turning to US inflation data, which is expected to show that CPI eased to 2.6% YoY in August, down from 2.9% in July. The data is the final major release ahead of next week's FOMC meeting and could help to decide whether the Fed will opt for an outsized rate cut or not.

The market is currently pricing in a 65% probability of a 25 basis point rate cut and a 35% probability of a 50 basis point cut. A weaker-than-expected reading could fuel expectations for the latter, pulling the US dollar lower.

Meanwhile gains in pair could be limited ahead of tomorrow's ECB interest rate decision.

German inflation data yesterday confirmed that inflation cooled to a three-year low of 1.9% in August, making it easier for the ECB to cut rates again tomorrow by 25 basis points.

EUR/USD forecast - technical analysis

EUR/USD fell away from resistance at 1.12, dropping below 1.11 and the 20 SMA before finding support at 1.1015, the rising trendline dating back to April.

Should this support hold, buyers will look to rise back above the 20 SMA at 1.1080 and 1.11 to extend gains towards 1.1150, the September high.

Should sellers break below the rising trendline and 1.10, bears could gain traction, opening the door to a deeper selloff towards 1.0950.

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