GBP/USD, DAX Forecast: Two trades to watch

GBP/USD holds above 1.34 with US midterms and BoE in focus

GBP/USD is holding above 1.34 as traders wait on the sidelines ahead of the U.S. midterm elections today and the Bank of England rate decision on Thursday.

The Bank of England is expected to raise rates by 25 basis points to 4%. This will mark its first hike since August 2023.

The meeting comes as UK inflation remains elevated, at 3.5%, above the Bank of England's 2% target, and after signs of the jobs market stabilising.

Given that the move is almost fully priced in, the focus will be on Governor Andrew Bailey's press conference, together with updated inflation and growth forecasts.

The market is pricing in three to four more quarter-point hikes in 2027, which would take the rate to between 4.7% and 5%. Policymakers may push back against these expectations, indicating through their comments and the meeting minutes that Bank Rate is unlikely to reach the levels currently priced in by the market.

In addition to the Bank of England, attention will also be on the U.S. midterm elections. Heading into the elections, the U.S. dollar is under pressure, trading around its lowest level in nearly a month on Monday, before better-than-expected ISM manufacturing PMI data helped limit USD losses.

Results from the midterms are likely to start coming through shortly after midnight local time, while results in closely contested states may not be clear for several days after the election.

Polls point to the Republicans being defeated in the House of Representatives, while control of the Senate will be a tighter battle.

A gridlock scenario could provide headwinds for the U.S. dollar. A red sweep, which is looking unlikely, could be supportive of the U.S. dollar.

JOLTS job openings are also due this afternoon and come ahead of Friday's nonfarm payroll report.

GBP/USD forecast – technical analysis

GBP/USD has recovered from the 1.32 support zone, rising above the falling trend line, the 50 EMA and the 200 EMA to a six-week high of 1.3450, maintaining a constructive picture.

Bulls, supported by the RSI above 50, will look to extend gains towards the 1.35 resistance zone before attention turns towards 1.36 and 1.3650.

Immediate support is seen at the 200 EMA at 1.3390 and the 50 EMA at 1.3355, before attention turns to the 1.33 support zone. A break below here turns attention back towards 1.32.

DAX slips as the global tech selloff continues

The DAX, along with its European peers, is opening lower, falling across the board and tracking sharp losses in the U.S., with tech stocks leading declines as concerns over the outlook for the AI trade weigh on sentiment. Rising oil prices are adding to the bearish mood.

The U.S. carried out strikes on Iran's Qeshm Island in the Strait of Hormuz a day after Iran showed openness to peace talks and President Trump indicated he might be holding off on further strikes. Oil prices are rising 1.6%, having fallen 7% in the previous session.

Tech stocks are under pressure as investors continue to reassess the AI trade following disappointing results from U.S. hyperscalers last week.

Earnings from Apple are also hurting market sentiment. While the tech giant beat earnings and revenue forecasts, its disappointing gross margin forecast for the crucial holiday period has sent the share price lower. The weaker forecast comes as rising memory chip costs act as a headwind.

On the data front, the economic calendar is quiet today, with attention turning to PMI figures tomorrow, as well as Eurozone inflation data.

Given the quiet economic calendar, our attention will remain on sentiment and the ongoing sell-off in tech stocks.

DAX forecast – technical analysis

The DAX recovered from the 200 EMA and 25,000 support, rising to 26,130, a two-month high, before easing back to 25,780 currently. It trades above its rising trend line, the 50 EMA and the 200 EMA, keeping the outlook constructive.

The price is testing support at 25,700. A break below here would bring the 50 EMA at 25,500 and the rising trend line at 25,300 into focus, opening the door to the 200 EMA at 25,000.

It would take a break below this level for the outlook to turn more bearish and for attention to turn to 24,620, the July low, ahead of 24,000, the June low.

On the upside, buyers would need to rise above 26,140, the October high, to extend the move towards 26,600 and fresh record levels.

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