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

Fiona Cincotta
By :  ,  Market Analyst

GBP/USD rises ahead of the Chancellor’s Budget

GBP/USD holds over 1.19 as attention turns to the UK fiscal statement. Chancellor Hunt is widely expected to raise taxes and cut public sector spending to plug a £50 billion black hole.

The Budget will be framed around the latest forecasts from the OBR, which are expected to make for pretty grim reading. The figures are likely to show the UK falling into recession in 2023 as high inflation squeezes household incomes and rising interest rates hit business and mortgage borrowing.

The fiscal tightening that Hunt is set to unveil will curb demand rapidly, one sure way to tame inflation. This means the BoE may have less work to do hiking interest rates to bring inflation back to its 2% target level.

It is difficult to see how today’s Budget can have anything but a negative impact on the pound.

GBP/USD has rallied 6% over the past six weeks, hitting a 3-month high of 1.2027 on Monday. If GBP/USD does manage to rise, it’s likely to be more of a dollar weakness story rather than owing to any explicit pound strength.

The USD is holding steady as investors continue digesting yesterday’s stronger-than-forecast retail sales and slightly more hawkish comments from Fed speakers.

US jobless claims and housing starts will be in focus. The housing sector has started showing weakness as high mortgage rates hit demand.

Where next for GBP/USD?

After rising over its 50 DMA and the falling trendline resistance dating back to February, GBP/USD has risen over 1.19. This, plus the bullish RSI, keeps buyers optimistic about further upside. Buyers need to rise above 1.2025, the November high, to expose the 200 DMA at 1.2230. A rise above here would be significant given that the price has traded below the 200 DMA since August last year.

Sellers could look for a fall below 1.1750, the July low, which opens the door to 1.1490, the falling trendline support. A fall below here could negate the near-term uptrend.



EUR/USD steady ahead of EZ inflation data

EUR/USD is holding steady after two straight days of gains as it waits for the next catalyst. Optimism that inflation in the US is cooling after PPI fell by more than expected boosted the pair. However, retail sales jumping by the most in 8 months lifted inflation worries, picking the USD up from recent lows

Eurozone inflation data is expected to confirm a record high of 10.7% YoY in October, up from 9.9% in September. Over half of eurozone countries are recording double-digit inflation, which will add pressure on the ECB to keep hiking interest rates aggressively.

Where next for EUR/USD?

EUR/USD has risen from the 0.9730 November low, pushing above the 50 sma, falling trendline, and is testing 1.04. The RSI supports further upside while it stays out of overbought territory.

Buyers will look for a move over the 200 sma at 1.0430 to bring 1.0635 into play the June 27 high.

Support can be seen at1.0280, the weekly low, ahead of 1.02, the September high. It takes a move below 1.010 to negate the near-term uptrend.



Related tags: Trade Ideas GBP USD EUR/USD

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