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GBP/USD is holding steady ahead of PMIs & Fed Chair Powell’s speech

• UK services PMI is expected to slow to 53.6 from 54.2
• US services PMI is expected to slow to 53 from 54.5
• GBP/USD tested support at 1.3480 and holds above 1.35

GBP/USD is holding steady above 1.35 after gains yesterday, as the USD bears pause and as attention turns to PMI figures and a speech by Federal Reserve chair Jerome Powell later today.

UK PMIs are expected to show that the dominant service sector activity is slightly to 53.6 in September, down from 54.2, whilst manufacturing contracted at a slower pace of 47.2, up from 47. The composite PMI, which is considered a good gauge for business activity, is expected to be 53, down from 53.5. This remains an expansionary territory above the 50 level, which separates growth from contraction.

Whilst stronger than expected PMI data could give the pound a boost, the mood towards sterling is likely to remain cautious. Ongoing fiscal concerns ahead of the government budget in November could limit the upside in sterling even as the Bank of England looks unlikely to cut interest rates again this year.

The US dollar fell yesterday and is holding on to those losses on Tuesday as traders continue to weigh up comments by the Federal Reserve policymakers for clues on the path of interest rates.

A slightly hawkish tone from Fed speakers has seen the bearish pressure ease. However, Federal Reserve Chair Jerome Powell's comments today will be key.

The market is pricing in a 90% chance of a 25 basis point rate cut in October, down slightly from 92% on Friday.

As well as the Federal Reserve chair Jerome Powell's comments, attention will also be on US PMI figures. The services PMI is expected to slow modestly to 53 from 54.5, and manufacturing is also expected to slow to 51.6 from 53. Weaker-than-forecast data could add to Fed rate cut expectations, pulling the USD lower.
 

GBP/USD forecast- technical analysis

GBP/USD broke out above the falling trendline resistance, reaching a peak of 1.3730 before rebounding lower and finding support on the falling trendline support and 50 SMA at 1.3470. The RSI is neutral.

Sellers would need to break below 1.3480 -1.3430 support zone to extend losses towards 1.3350.

Should buyers successfully defend the 1.3480 region, buyers will need to rise above 1.36, the August 14 high, to bring 1.37 and 1.3720, the September high, into focus.
 

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DAX rises on AI optimism & as German business activity accelerates

• Nasdaq closed at a record high on Nvidia – OpenAI news
• German services PMI rose to an 8-month high
• DAX trades in a descending channel

The DAX started Tuesday on the front foot, pushing above 23,600 and reversing yesterday's decline. The mood is buoyant on AI optimism following the Nvidia -OpenAI partnership news and after German business activity grew at a faster pace in September.

News that Nvidia will invest $100 billion in OpenAI has fueled the AI trade, lifting the Nasdaq to a fresh record close. Tech stocks in Europe are benefiting from the knock-on effect.

Meanwhile, German business activity grew at an accelerated pace in September, the fastest pace in 16 months, mainly due to a rebound in the service sector. PMI data show the services activity rose to 52.5 this month, up from 49.3 in August and surpassing economists' expectations and marking an 8-month high. This marks the fourth consecutive month that the composite PMI, a reliable indicator of business activity, has exceeded the 50 mark, a level which separates expansion from contraction.

However, the manufacturing sector showed signs of strain. The manufacturing PMI slipped to 48.5, down from 49.8 in August.  New orders were down, showing fragile demand both domestically and from abroad.

Attention will now turn to the US, where UIS PMIs and a speech by Federal Reserve Chair Jerome Powell could impact sentiment.
 

DAX forecast – technical analysis

The DAX trades in a near-term descending channel, dating back to mid-August. The price broke below the multi-month rising channel to a low of 23,300. While the price has recovered from this low, the near-term downtrend remains intact.

Sellers will look to extend the bearish move below 23,300 towards 23,000, the June low. A break below here exposes the 200 SMA at 22,800.

Buyers need to rise above the upper band of the falling channel and last week’s high around 23,800 to extend gains towards 24,000, the round number and 50 SMA.
 

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