GBP/USD, DAX Forecast Two trades to watch

GBP/USD rises to a 3.5-year high on USD weakness

• USD falls to a multi-year low as Trump considers naming Powell’s replacement
• BoE Governor Andrew Bailey is due to speak later
• GBP/USD tests 1.3750 resistance

GBP/USD has jumped to 1.3750, a 3.5-year high, boosted by improved risk sentiment as the Israeli-Iran ceasefire continues to hold up, while the US dollar is falling on concerns over Federal Reserve independence and the prospect of lower interest rates.

According to a report in The Wall Street Journal, Trump is considering announcing a replacement for Federal Reserve Chair Jerome Powell in September or earlier, well before Powell's term ends in May next year, which could weaken his position.

The markets interpret this move as a potential shift in the Fed’s policy path, especially since Trump will likely seek a replacement who aligns more with his preference for low rates, potentially influencing future interest rate expectations.

These reports come as Federal Reserve Chair Jerome Powell reiterated concerns that tariffs could potentially lead to higher inflation during his testimony before Congress this week. However, he also said that if higher inflation doesn't show through, then the central bank would likely continue to cut rates. These comments appear slightly more dovish than the conclusion of the Fed's policy meeting last week.

Looking ahead, attention will be focused on the US data release, which includes jobless claims, durable goods, pending home sales, and Q1 GDP data.

The UK economic calendar is relatively quiet, with attention focused on Bank of England speakers, including Governor Andrew Bailey, who is due to speak later today.

The pound is paying attention to industry reports, which point to a slowdown in the UK labour market.  A report released today by the British Chambers of Commerce stated that around one-third of small and medium-sized UK employers have made staff redundant or are considering job cuts as a result of the increased tax burden.

This report follows the release of data earlier in the week, which showed that wage growth had slowed and job vacancies had declined. Bank of England policymaker David Ramsden highlighted an apparent slowdown in the UK labour market as a concern and the reason to cut rates more aggressively.

GBP/USD forecast – technical analysis

GBP/USD trades within a rising channel dating back to the start of the year. The price recently rebounded from the 50 SMA support, rising above 1.3630, the early June high, to resistance at 1.3750, the January 2022 high, and the mid-point of the rising channel.

Buyers, supported by the RSI above 50, will look to extend gains towards the 1.38 round number and up towards 1.40, the upper band of the rising channel.

Support is at the 1.36 – 1.3630 zone. Below here, 1.3450 comes into play, with a break below here creating a lower low.

DAX rises cautiously higher as Israel-Iran ceasefire holds

• Middle East tensions ease, but Trump’s erratic approach limits gains
• German GFK consumer sentiment slips modestly to -20.3
• DAX struggles at the 20 SMA

The DAX and its European peers are moving cautiously higher on Thursday, buoyed by signs that the Israeli-Iran ceasefire is holding. At the same time, Trump's latest criticism of Federal Reserve chair Jerome Powell is limiting gains.

Reports that Trump is considering naming Powell's replacement for Fed chair early have brought the president's erratic approach back into the spotlight.

Meanwhile, trade policies are also in focus ahead of the July 9 deadline. European Union leaders will inform the European Commission today whether they prefer a swift trade deal with the US, even if it means conceding better terms to Washington, or whether they prefer to hold out for more favourable terms.

On the data front, German consumer confidence unexpectedly deteriorated, falling to -20.3 down from -20. Economists had expected a slight improvement to -19.3. This slight setback comes after three straight months of improving morale. Economic expectations climbed 7 points to 20.1, marking the highest levels since the outbreak of the Ukraine war. This has been driven in part by optimism surrounding a €500 billion defence and infrastructure stimulus package.

With no further eurozone data scheduled for release today, attention will shift to the US data release this afternoon, including GDP, jobless claims, and pending home sales. Stronger-than-expected data could help buoy sentiment.

DAX forecast – technical analysis

The DAX recovery from the 23k low is struggling to move past the 20 SMA resistance at 23,750. Buyers will need to overcome this hurdle to extend gains towards 24k and on to 24,500 and fresh record highs.

Should sellers successfully defend the 20 SMA,  a retest of support at 23,350, the March high could be on the cards. It would take a break below 23k to create a lower low.