GBP/USD falls to a 2-month low and the labor market weakens

The pound is falling to a 2-month low after data shows that UK earnings slowed slightly in the three months to August, suggesting the BoE may be able to continue reducing rates, or do so at a cautious pace.

UK jobs data showed that the unemployment rate unexpectedly edged higher to 4.8%. Up from 4.7%. Meanwhile, average earnings excluding bonuses were 4.7% in the three-month period, slightly weaker than 4.8% previously. Interestingly, in the private sector alone, which the BoE closely watches, earnings excluding bonuses rose by 4.4%.

The data suggests that the UK labour market is slowly deteriorating, which gives ammunition to the BoE doves and even the centrists.

Currently, the market is not expecting another rate cut until March, with only a 40% probability of a December rate cut being priced in.

UK GDP data is due later in the week, along with inflation figures next week.

The U.S. dollar is inching higher, hovering around 99.3, versus its major peers, as investors await comments from Federal Reserve chair Jerome Powell later in the session. His comments come as the US government shutdown enters its third week, resulting in a limited release of economic data.

The Fed is widely expected to deliver another 25 basis point rate cut this month, with a third of this year potentially coming in December.

Meanwhile, the market is also tracking the US-China trade developments ahead of a potential Trump meeting in South Korea later this month.
 

GBP/USD forecast – technical analysis

GBP/USD falls below the multi-month rising trendline and 1.3360 support, dropping to 1.3250, its lowest level since August 1. Sellers, encouraged by the breakdown of these support levels and the RSI below 50, will look to extend losses towards the 1.3150 zone, the August and May low.

Immediate resistance is seen at 1.3360. A rise above here opens the door to 1.3470, the October high. Above here, 1.36 comes into play.

(Click on image to enlarge)

DAX falls as US-China trade frictions ramp up

The DAX is falling to a two-week low as investors fret over renewed US-China trade frictions on the announcement of tit-for-tat additional port fees on ocean shipping firms.

On Friday, President Trump threatened to impose 100% additional tariffs on Chinese goods in response to Beijing's rare earth export controls. While Trump adopted a more considerate tone over the weekend, tensions appear to be ramping up again on Tuesday. Additional port fees will mean that everything from holiday toys to crude oil may go up in price.

In Europe, miners who performed well yesterday, driven by hopes of improved US-China relations, are under pressure today.

Automakers are also falling after Michelin, the French tyre maker, slid over 9% cutting its full year outlook amid worse than expected business conditions in North America. This could bode poorly for German carmakers as the earnings season comes into focus.

On the data front, German economic sentiment is due to be released and, as expected, it ticked up to 40.5 in October, up from 37.3, although the current situation remains depressed at -75. Weak data could hurt sentiment, which is already fragile.
 

DAX forecast - technical analysis

After rising to a record high of 24,773 the DAX has eased back to test the rising trendline support at 24,150. For now, the uptrend holds. A break below here and 24,000 opens the door to a deeper selloff towards 23,375. Should the 24,150 support hold, buyers will look to retest the 24,773 record high.

(Click on image to enlarge)

More By This Author:

Two Trades To Watch: GBP/USD, EUR/USD Forecast - Thursday, Oct. 9
Two Trades To Watch: USD/JPY, DAX Forecast - Wednesday, Oct. 8
Two Trades To Watch: EUR/USD, FTSE 100 Forecast - Tuesday, Oct. 7