Two trades to watch: GBP/USD, DAX

Fiona Cincotta
By :  ,  Market Analyst

GBP/USD falls ahead of the BoE rate decision

 

GBP/USD tumbled to 1.12, a new 37-year low yesterday after the Fed hiked rates by 75 basis points for a third straight meeting and hammered home its hawkish message. The market is now expecting another 75 basis point hike in November and at least a 50 basis point hike in December.

The USD jumped to a 20-year high on the prospect of higher interest rates for longer.

Now it is the BoE’s turn. With the benefit of knowing the Fed’s move, the BoE could now be more inclined to hike by 75 basis points as it fights 9.9% inflation. In fact, a 50 basis point hike seems entirely out of touch in today’s climate, where most central banks are debating a 75 or 100 basis point hike. The BoE will need to hike by at least 75 bps to prevent the pound from falling to 1.10, adding to inflationary pressures and to net off the fiscal support coming from Liz Truss.

Where next for GBP/USD?

 

GBP/USD is falling for the third straight day, breaking below the multi-month descending trendline support at 1.1275, hitting a new 37-year low of 1.1220.

The RSI has fallen below 30 into oversold territory, so caution should be applied before placing large short positions. Sellers will look to take out the 1.12 round number to extend the bearish selloff ahead of 11.50.

Buyers will look for a move over 1.1350, last week’s low, to rise towards 1.1405, the September 7 low. It would take a move over 1.1515 to negate the near-term downtrend.

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DAX tumbles post-Fed & Putin

 

The DAX is heading for a 1.6% fall on the open after Wall Street closed 1.7% lower following the hawkish Fed meeting. Fed Chair Jerome Powell made it clear that the US central bank is willing to risk economic weakness to get inflation back under control.

Given that the US economy is the largest in the world, slower growth is expected to ripple out across the globe.

The ECB hiked rates by 75 basis points and will need to continue at this pace to tame inflation, according to ECB official Isabel Schnabel who spoke early this morning.

In addition to central bank concerns and recession fears, Putin’s order of troop mobilization to support the war in Ukraine and his thinly veiled nuclear threat are adding to the downbeat mood.

Where next for the DAX?

 

The DAX trades below its 20 & 50 sma and its multi-month falling trendline and trades around year-to-date lows. The RSI supports further downside. Sellers will need to break below 12600 to extend the bearish trend to 12430, the YTD low, and towards 12000.

Meanwhile, buyers could be encouraged by the long lower wick suggesting that there was little acceptance at the lower price today. Buyers need to move over 13000 the negate the near-term downtrend.

 

 

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Related tags: Trade Ideas GBP USD Dax

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