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

EUR/USD edges higher ahead of German inflation data & Fed Chair Powell’s speech

• German CPI is expected to cool to 1.7% YoY
• US Fed Chair Powell speaks later today
• EUR/USD tests 1.12 resistance

EUR/USD is edging higher on Monday as investors brace themselves for a busy week. Attention is preliminary on the German inflation data, which is due to show a decline to 1.7%, its lowest level since February 2021. The data comes after softer inflation from Spain and France last week and ahead of the eurozone inflation figures tomorrow.

Cooling inflation is expected to support the view that the ECB will cut rates again by 25 basis points in the October meeting. The market is pricing in a 25-basis-point rate cut every meeting until June 2025. Cooler inflation comes amid signs that the economy is facing slower growth after disappointing PMIs earlier in the month and a string of weak data from Germany.

Meanwhile, the US dollar is starting the new week on the back foot against its major peers on expectations that the Federal Reserve will continue cutting interest rates.

The market will be watching a speech by Federal Reserve chair Jerome Powell later today for clues about whether the Fed will opt for another bumper 50 basis point rate cut next month.

However, data this week could give more clues than Powell's, with ISM manufacturing and services PMI figures due as well as US nonfarm payroll data on Friday.

The market is currently pricing in a 53% probability of a 50 basis point rate cut in November. Soft data this week and a dovish-sounding Powell could raise rate cut expectations, pulling USD lower.

Still, with the Fed and the ECB on similar rate-cutting paths, EUR/USD could struggle to rise much further.

EUR/USD forecast – technical analysis

EUR/USD has extended its recovery from 1.10, grinding higher to 1.12, the August high. Buyers will look to rise above here to extend the rise to 1.1275 the 2023 high.

On the downside, support can be seen at 1.1140, the December 2023 high. Below here, 1.11, the round number and the rising trendline support, comes into play. It would take a move below 1.10 to create a lower low.

 

FTSE falls after Q2 GDP is revised lower

• UK Q2 GDP is 0.5% QoQ from 0.6% previously
• Miners are still rising after the Chinese stimulus announced last week
• FTSE briefly spikes below 200 SMA

The FTSE 100 is heading lower at the start of the week after the downward GDP revisions and after booking gains of over 1% in the previous week.

The UK GDP was downwardly revised, with the economy growing more slowly than initially thought in the April to June period. According to the Office of National Statistics, the UK GDP was 0.5% QoQ, down from the earlier reading of 0.6%.

The Bank of England forecasts growth will slow to 0.3% in the current quarter, and the mood is likely to turn cautious ahead of the Chancellor's first budget on October 30th. PM Kier Starmer has already warned that the Budget will be painful for some. Travel stocks and retailers are dominating the FTSE loser board.

Today's move lower follows substantial gains last week following China's unveiling of vast stimulus measures, which sent metal prices and miners surging. Today, miners such as Rio Tinto and Glencore continue to rise.

Attention will not turn to Federal Reserve chair Jerome Powell’s speech, which could offer more clues about the size of the Fed’s next rate cut.  

FTSE forecast – technical analysis

While the FTSE remains range-bound on the daily chart, the 4-hour chart shows the price trading within a symmetrical triangle.

The price recently ran into resistance at 8335 and has fallen sharply lower, briefly breaking below the 200 SMA and the 50 SMA. However, the long lower wick on the candle suggests limited selling demand at the lower level. The price has now recovered above the SMAs.

Sellers would need a close below these levels to spur further selling, which would bring the price toward 8225 last week’s low.

On the upside, 8335 is the first hurdle with a rise above here creating a lower low.