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GBP/USD tests key support ahead of US data drop

• USD holds yesterday's gains ahead of GDP, jobless claims & durable goods orders
• GBP upside is limited amid persistent fiscal concerns
• GBP/USD tests trendline and horizontal support

GBP/USD is holding steady following yesterday's losses, after the USD rebounded, and as attention turns to a US data release later today, as well as a slew of Fed speakers.

The USD is holding onto Wednesday's gains, supported by comments from Federal Reserve Chair Jerome Powell earlier in the week. Powell adopted a cautious tone to further rate cuts, highlighting the risks of supporting a weaker jobs market at a time of sticky inflation.

Looking ahead today, the focus will be on US data, including Q2 GDP growth, jobless claims, and durable goods orders. These figures come as investors weigh the prospect of further rate cuts from the Federal Reserve—the market is pricing in a 90% probability of a 25-basis-point rate cut in October.

Yesterday, San Francisco Fed President Mary Daly said that further rate reductions would likely be needed to support the labour market. However, Chicago Fed President Austan Goolsbee warned against a series of rate cuts, highlighting diversions within the FOMC.

Traders are pricing in 43 basis points worth of rate cuts in their remaining two policy meetings this year. Today's data, along with tomorrow's core PCE—the Fed's preferred gauge of inflation—could impact those expectations.

Meanwhile, the pound has been struggling amid rising concerns over the UK's fiscal position, following a significant increase in Britain's public sector borrowing and a slew of downbeat UK economic data points. Any upside in GBP could be limited in the run-up to the Budget in late November.

The outlook for the economy is deteriorating amid elevated inflation, which is forcing businesses to cut costs. Additionally, hiring new staff is more expensive due to tax increases. As a result, unemployment could rise and growth slow further.
 

GBP/USD forecast – technical analysis

GBP/USD broke out above its falling trendline resistance and rose to 1.3725 before rebounding lower to test the confluence of the near-term falling trendline, the multi-month rising trendline, and horizontal support at 1.3440. The RSI is below 50, supporting further losses.

Sellers need to take out support at 1.3440 to extend losses towards 1.3360. A break below here could spark a deeper decline towards 1.3150, the August low.

Should the support hold, buyers could look to rise above the 20 SMA at 1.3520, opening the door to 1.36 and 1.37.

(Click on image to enlarge)

DAX falls despite improving consumer sentiment

• DAX falls tracking US stocks lower
• GFK consumer sentiment improved to -22.3
• DAX trades in a falling channel

The DAX, along with its European peers, is falling on Thursday, tracking overnight losses from the US, despite stronger-than-expected German GFK consumer confidence data. A slew of Fed speakers later in the session could also impact sentiment.

US stocks fell for a second straight session following Fed Chair Powell’s cautious tone towards further rate cuts and after he warned of relatively high valuations giving investors pause for thought.

In Europe, German GFK consumer confidence improved heading into October, marking the first notable improvement in months. Data from GfK showed sentiment edged up to -22.3 in October from -23.5 in September, slightly beating forecasts and hitting its highest level since April. The improvement is mainly due to rising optimism surrounding household incomes, with hopes of healthier finances. However, the headline number remains deeply negative, suggesting that most households are remaining cautious. This caution is owing to persistent inflation and job worries, as well as global tensions, which could keep any recovery slow and fragile.

Meanwhile, the auto sector could be in focus after data showed that sales in the EU, Britain, and the European Free Trade Association rose 4.7% last month.

Looking ahead to the US session, a plethora of Fed policymakers, as well as U.S. data, could drive Fed rate expectations and broader market sentiment.
 

DAX forecast – technical analysis

The DAX trades in a falling channel that dates back to mid-August. The price fell to a low of 23,300 and is attempting to recover, testing resistance at the upper band of the falling channel.

Buyers need to break above this level and the weekly high at 23,740 to extend gains towards 24,000, the round number, the 50-day SMA, and the rising trendline resistance.

Failure to close above the upper band of the descending channel could result in a retest of the 23,300 support level. A break below here opens the door to 23,000, the June low.

(Click on image to enlarge)

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