DAX falls on hawkish Fed but rises from session lows. GBP/USD drops to 2022 low.
DAX falls on hawkish Fed but rises from session lows
European stocks are heading lower as a hawkish Fed sparks risk off trade.
Overnight Fed Chair Jerome Powell signaled that the Fed would hike rates in March and then continue with a sustained cycle of tightening, including a reduction of the balance sheet, Powell warned over persistently high inflation and ongoing supply chain issues.
Fears over whether the US economy is able to absorb an aggressive Fed is hurting risk sentiment.
A surprise improvement in German GFK consumer confidence has helped lift the index off session lows. Consumer confidence rose to -6.7 in February, down from -6.9 in January.
Where next for the DAX?
The DAX has been trending lower since the start of the year, it trades below its 20 & 50 sma on the 4-hour chart. The price fell to a low of 14850 and is attempting to build gains. The RSI is in bearish territory but pointing higher heading towards neutral. Buyers are attempting to retake the 20 sma at 15250 (DAX).
A move above here could bring 15550 into focus, the 50 sma and yesterday’s high. Should buyers retake this level the bias would become bullish.
On the downside, bears will look for a move below 15050 yesterday’s low to target 14840.
GBP/USD drops to 2022 low
GBP/USD falls on the back of Fed inspired US dollar gains and as UK politics remain in focus.
The Sue Grey report on parties at Downing Street whilst the rest of the country was in lock down is due to be released soon. Whether soon means today is still unclear. However, the report could paint Boris Johnson is a bad light and potentially see him out of a job – either through resignation – or voted out by MPs.
Whilst a resignation from the PM could spark some volatility in sterling, Rishi Sunak is the most likely replacement, whose policies are aligned. No major change to policy or the Brexit stance means over the medium term the impact should be minimal.
The risk off mood in the market supports the greenback whilst dragging on sterling.
A slew of US data is due to be released including US GDP, durable goods orders and initial jobless claims.
Where next for GBP/USD?
The taking out of support at 1.3430, in addition to the bearish PMI keeps seller’s hopeful of further downside.
Support can be seen at 1.3375 the December 16 high ahead of 1.33 round number. On the flip side, buyers could look for a move over 1.3525 to negate the near term down trend. It would take a move over 1.3660 for buyers to gain traction.
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