GBP/USD, DAX Forecast: Two Trades to Watch

GBP/USD looks to BoE Bailey’s hearing before the Treasury Select Committee

UK PMI saw the fastest decline since 2020
BoE Andrew Bailey to be grilled in Parliament
GBP/USD trades in a falling channel

GBP/USD fell 0.45% in the previous session, dropping to its lowest level since mid-June amid rising concerns over the health of the UK economy, compared to the US economy, which is proving to be more robust.

Yesterday UK PMI data showed that business activity experienced its sharpest slowdown in 7 months and service sector activity contracted for the first time since January.

Today, attention is shifting to the BoE Andrew Bailey’s testimony before the Treasury Select Committee. Here, the Governor of the BoE will be grilled on key questions surrounding monetary policy, inflation, and the economic outlook.

Any hints that the BoE could pause rate hikes could pull GBP/USD lower. Meanwhile, should Andrew Bailey sound too hawkish, investors could grow increasingly concerned about a recession in the UK which could also have a negative impact on GBP. There is a fine line that the governor needs to walk in order not to knock the pound lower.

Meanwhile, the USD rallied across the board yesterday on safe-haven flows and as treasury yields rose. Today the USD is easing after Federal Reserve official Christopher Waller, one of the more hawkish policymakers said that a September rate hike wasn't necessary.

Attention now turns to US ISM services PMI which is expected to be 52.5, down from 52.7. The dominant service sector PMI above 50 could fuel sticky inflation expectations and fuel bets of another Fed rate hike before the end of the year.

GBP/USD forecast – technical analysis

GBP/USD trades in a falling channel, breaking below the 50 sma. This along with the RSI below 50 keeps sellers hopeful of further downside.

Should sellers break below 1.2530, the September low, and 1.25 round number this exposes the 200 sma at 1.2440 ahead of the May low of 1.2310.

Buyers will look for a rise above the 1.2665 the 100 sma, which will open the door to 1.2710 the September high with a rise above here creating a higher high.

DAX falls as economic outlook deteriorates

The DAX has opened lower, extending losses from the previous session as concerns grow over the economic outlook in Europe’s largest economy.

German factory orders plunged 11.7% in July after 7% gains in the previous month. The data comes after the manufacturing PMI fell to 39.1 in August, marking the second-lowest reading since May 2020 and highlighting the extent of the weakness in the sector.

In addition to domestic weakness, data from China, a key trade parent for Germany, saw its services sector expand at its slowest pace in 8-months.

Looking ahead attention now turns to eurozone retail sales which are expected to fall -0.1% MoM, after falling -0.3% in June. Further weakness in retail sales will add to evidence that the consumers remain pressured.

In the US session, ISM services data could influence sentiment.

DAX forecast – technical analysis

After breaking below the 50, 100 and 20 smas, the DAX is testing yesterday's lows of 15690. The RSI below 50 supports further downside.

A break below 15690 opens the door to 15500 the 200 sma and 15465 the August low.

Meanwhile, buyers will look for a rise above 15940 the confluence of the 50 & 100 sma to expose 16044 the August high.

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