GBP/USD, DAX Forecast: Two trades to watch
GBP/USD above 1.27 as the country gears up for an election
- The PMI announced a general election on July 4th
- UK composite PMI eased to 52.8 from 54.1 in April
- USD slips amid risk on trade & despite hawkish FOMC minutes
- GBP/USD holds above 1.27
The pound is holding on to yesterday's gains following hotter-than-expected inflation, a mixed PMI report, and despite hawkish FOMC minutes. However, gains could be limited after Prime Minister Rishi Sunak’s surprise election announcement.
The Prime Minister announced that an election would take place on July 4th, and polls suggest that Labour will win. However, as the market prepares for the election campaign, increased political uncertainty could cause appetite for sterling to wane over the coming six weeks.
On the data front, UK PMIs were mixed. The composite PMI eased to 52.8 from 54.1 in April. This was due to slowing service sector growth and a return to growth in the manufacturing sector.
The slower growth in the service sector will be a welcomed development at the BoE after data yesterday showed that service sector inflation remained sticky at 5.9%, well above the 5.5% level expected. Meanwhile, headline CPI cooled by less than expected to 2.3%, resulting in the market pushing back rate cut expectations to August.
Meanwhile, the US dollar is falling versus its major peers. Following the impressive Nvidia earnings and outlook, the upbeat market mood drives risk assets, such as stocks, higher while pulling on demand for safe-haven assets.
Still, losses in the U.S. dollar could be limited given the hawkish FOMC minutes that showed that policymakers were still concerned over sticky inflation, with some policymakers even prepared to raise rates further.
The minutes came after a string of Federal Reserve officials warned that rates must stay high for longer to tame inflation.
Later today, attention will turn to US PMI data and jobless claims for further clues about the health of the US economy and the likelihood of rate cuts.
GBP/USD forecast – technical analysis
GBP/USD rising above 1.27 and the RSI above 50 keep buyers hopeful of further gains. Buyers will look to rise above 1.2750, the weekly high, to extend gains towards 1.28, the psychological level. Above here, 1.2890, the 2024 high, comes into focus.
A break below 1.27 could open the door to 1.2630, the 100 SMA. Should sellers extend losses, 1.2545 comes into focus.
DAX rises on Nvidia optimism, PMIs in focus
- Chip stocks rally after Nvidia’s rally
- German composite PMI rises to 52.2
- DAX consolidates below its record-high
The DAX and European shares are edging higher amid an upbeat market mood following strong forecasts from Nvidia, the AI darling of Wall Street. These forecasts lifted global chipmakers, and investors digested stronger-than-expected business activity in the region.
Shares of European semiconductor stocks are pushing higher after Nvidia forecast quarterly revenue well above estimates, announced a stock split and raised its quarterly dividend by 150%. The Nvidia share price is trading up 6.5% premarket.
Meanwhile, German business activity was stronger than expected in May, with the composite PMI rising to 52.2, up from 50.6 in April. The rise in the composite PMI was due to stronger growth in the service sector and a smaller contraction in the manufacturing sector.
Adding to the risk on mood, eurozone business activity also came in stronger than expected, with the composite PMI rising to 52.3, up from 51.7 in April.
Attention will now turn to negotiated wage rates for the first quarter, which will be in focus after several ECB policymakers had previously highlighted wage growth as a possible hurdle to cutting interest rates. That said, in a speech earlier this week, ECB president Christine Lagarde firmly signaled a June rate cut, saying that she was confident that inflation is back under control.
This is in contrast to the US, where the minutes of the latest FOMC meeting raised concerns over sticky inflation, with some policymakers prepared to hike rates further if necessary.
DAX forecast – technical analysis
After reaching an all-time high of 18928, the DAX eased lower and is consolidating above 18635, the April high. Buyers will look to extend gains above 18928 towards 19000 and fresh all-time highs.
Should sellers gain the upper hand, a break below 18635 will push the price lower to 18250, the mid-April high and 50 SMA.
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