GBP/USD, DAX: Two Trades to Watch

GBP/USD rises after UK government net borrowing falls

• UK budget deficit from April to July was £56.6bn
• USD falls as treasury yields tick lower
• GBP/USD tests 50 sma resistance

GBP/USD is urging for a second straight session, amid a weaker USD as US treasury yields pause and as a cautiously optimistic market mood lifts GBP.

On the data front, UK public sector net borrowing came in below expectations for the first 4 months of this year, giving the government plenty of breathing space. The budget deficit between April and July was £56.6 billion, £11.4 billion less than the OBR forecast in March.

The data continues the recent run of better-than-expected figures for the UK. Broadly speaking, the pound remains supported by hawkish BoE expectations. Record wage growth and sticky inflation mean keeps pressure on the BoE to keep raising interest rates.

Meanwhile, the USD is falling as treasury yields ease back from a 16-year high of 4.34% reached overnight.

Treasury yields have pushed higher on bets that the Federal Reserve will keep raising interest rates higher and for longer to tame inflation amid a persistently strong economy.

Attention now turns to US existing home sales which are expected to remain depressed around a 5-month low at 4.15 million, as the high-interest rate environment dampens the housing market.

Fed speakers will also be in focus ahead of Federal Reserve Chair Jerome Powell’s speech at Jackson Hole Symposium.

GBP/USD forecast – technical analysis

GBP/USD has rebounded from the 100 sma, rising above 1.27 and the 20 sma. This combined with the RSI above 50 keeps buyers hopeful of further upside.

Buyers are testing the 50 sma resistance at 1.28 which is also the multi-month rising trendline line. A rise above here brings 1.2840 the August high into focus.

On the downside, sellers will look for a move below 1.2680 the weekly low, to bring the 1000 sma at 1.2635 in focus. A break below 1.2616 creates a lower low.

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DAX rises after tech gains on Wall Street

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• DAX rises after tech boosts Wall Street
• German PPI drops sharply
• DAX finds support at 13465 again

The DAX, along with European bourses is pointing to a higher start, following on from strength on Wall Street overnight.

The market mood remains cautious after US treasury yields surged overnight and amid ongoing concerns over sluggish growth in China and Chinese authorities' lack of willingness to inject large amounts of stimulus into the economy.

Yesterday the PBoC cut the 1-year prime loan rate by 10 basis points and left the 5-year unchanged. Expectations had been for a 15-basis point cut to both rates.

However, tech stocks are once again in focus, overshadowing these worries amid the unveiling of Arm’s IPO and ahead of Nvidia’s results on Wednesday.

Nvidia trades up over 15% this week in anticipation of earnings.

That said, gains could be limited amid after PPI data from Germany yesterday revealed weakness and ahead of the Jackson Hole Symposium later this week.

The domestic picture for Germany remains troubling after data yesterday showed that the German PPI fell -6% YoY, the fastest pace since the financial crisis. This signals that CPI could also cool quickly, taking pressure off the ECB to hike rates much further. However, it also raises concerns over the demand picture in Germany.

The IMF and the OECD have warned that Germany could be the worst-performing major economy this year.

DAX forecast – technical analysis

The DAX has been trending lower since the start of the month, falling below its 20, 50 & 100 sma before finding support at 13465. This is the level that sellers need to break below in order to extend the bearish trend to the 200 sma at 15400 before bringing 15000 into focus. Sellers could be encouraged by the 20 sma crossing below the 100 sma and by the RSI remaining below 50.

On the upside, buyers could be encouraged by the long lower wick on Friday and Monday’s candle. Buyers could look for a rise above 15950 the 100 sma to negate the near term down trend. A rise above 16065 could create a higher high, bringing 16335 the May high into focus.

 

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