GBP/USD, DAX Forecast: Two Trades to Watch

GBP/USD looks to PMI data & Fed Chair Powell’s speech

• UK manufacturing PMI is expected to confirm 44.2 from 43 in August
• US avoids a federal government shutdown
• Powell & several Fed officials are due to speak
• GBP/USD consolidates around 1.22

GBP/USD is holding steady at the start of the week after four straight weeks of losses as the US dollar rally pauses for breath.

The pound managed to find some support at the end of last week after data showed that the UK economy made a stronger recovery from the pandemic than initially expected. Revisions to UK GDP showed the economy was 1.8% above pre-pandemic levels at the end of the second quarter.

However, the data doesn't change current expectations of more depressed growth in the second half of the year. Attention will now be on UK manufacturing PMI data, which is expected to confirm that the UK manufacturing PMI was 44.2 in September, up from 43 in August but still deep in contraction.

The data comes as the market doesn’t expect the Bank of England to raise interest rates again this hiking cycle after the central bank left rates on pause in September. This is in contrast to the Federal Reserve which indicated that it intends to raise interest rates again this year and ease less in 2024, keeping the US dollar buoyant in recent weeks. Federal Reserve chair Jerome Powell is due to speak later, and investors will be watching closely for clues over the future path of rate hikes. Other Fed speakers, including Harker and Williams, will also be in focus.

News over the weekend that the US government has managed to avoid a shutdown has helped risk sentiment at the start of the week, sending US futures higher, which could limit gains in the greenback.

Looking ahead, US ISM manufacturing PMIs are expected to show that activity remained in contraction with the PMI at 47.7 up modestly from 47.6 in August.

GBP/USD forecast – technical analysis

GBP/USD has been trending lower since the end of July, falling below the 200 sma before running into support at 1.2110 last week. The pair managed a small bounce to 1.2270, where it consolidates between these levels.

The 50 sma has crossed below the 100 sma and the 20 sma below the 200 sma in bearish signals, and the long upper wick on Friday’s candle suggests that there was little appetite for the pair at the higher price. Sellers will look to break below 1.2110 to continue the bearish trend although oversold conditions warrant caution.

Buyers will look to rise above 1.2270 and 1.23, the May low, to expose the 20 sma at 1.2350 to continue the recovery.

DAX rises ahead of manufacturing PMI data & as the US avoids a government shutdown

• DAX rises after 2 weeks of losses
• German manufacturing PMI is expected at 39.8 from 39.1 in August
• DAX rises towards 15450 resistance

European markets are heading for a mixed open on Monday after the US federal government avoided a shutdown and as investors continue to assess the economic and interest rate outlook.

Attention is on eurozone and German manufacturing PMI, although investors hoping for some positive start to the Q4 could be disappointed.

Eurozone manufacturing PMI is expected to confirm a fall to 43.4 in September, down from 43.5 in August meanwhile, German manufacturing PMI is expected to confirm the preliminary reading of 39.8, up from 39.1, whereby the level 50 separates expansion from contraction.

The data comes after Eurozone inflation data on Friday showed that consumer prices cooled by more than expected to 4.3%.

However, markets have been struggling with recession fears after a slew of disappointing data.

German retail sales on Friday unexpectedly plunged 1.2%. As persistently high inflation took its toll on consumers.

Sentiment has also been struggling on concerns that the Federal Reserve will keep interest rates higher for longer, sending treasury yields sharply higher.

Data from China over the weekend was also mixed, with the manufacturing PMI coming in weaker than expected but the official services PMI coming in stronger than forecast.

DAX forecast – technical analysis

The DAX broke below the 200 sma at 15465 support, dropping to a low of 15130 last week before recovering slightly to end the week at 15350, below the 15465 resistance.

Buyers will be looking for a close above that level to extend the recovery towards 15600, the 200 sma, negating the near-term downtrend and bringing 16000, the round number, into play.

Should sellers successfully defend 15465, then support at 15130 comes into play, with a break below here creating a, lower low and exposing 15000, the psychological level.