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GBP/USD falls after the BoE hike despite a rise in retail sales. DAX falls for a fourth day ahead of PMI data.
 

GBP/USD falls after the BoE hike and despite a rise in retail sales

GBP/USD Is heading lower for a second straight day does continue digesting a larger than expected Bank of England rate hike stronger than expected UK retail sales data at a hawkish-sounding Federal Powell.

All sales data unexpectedly rose by 0.3% MoM in May, defying expectations of a -0.3% decline. The data came after GFK consumer confidence also improved slightly to – 24, up from -27 despite inflation proving stubbornly sticky.

However, with interest rates rising, retail sales could struggle to keep rising. Yesterday the Bank of England raised interest rates by a larger-than-expected 50 basis points to 5%. The surprise move came after UK core Inflation unexpectedly rose to 7.1%, its highest level since 1992, after strong wage growth and uncomfortably high service sector inflation.

The market is now pricing in the 6% peak rate, a level where the UK economy would tip into recession. Rather than rising on the back of a larger-than-expected interest rate hike, the pound has been falling since the decision, reflecting fears of a recession later in the year.

Looking ahead, UK PMI data will be in focus. Expectations are for the manufacturing PMI to contract at a faster pace falling to 46.8 from 47.1.

Meanwhile, services PMI is set to show the sector expanded at a slower pace at 54.8 from 55.2.

Safe-haven flows support the USD amid a fragile market mood and after hawkish comments from Federal Reserve chair Jerome Powell on his second day testifying before Congress.

Today investors will also be looking at US PMI data, which is expected to show a similar pattern with services growing at a slower pace.

Several fed speakers could also move the dial investors will be watching but please over the future path of monetary policy.
 

GBP/USD outlook – technical analysis

GBP/USD has been trending higher, trading above its multi-month rising trendline. The price ran into resistance at 1.2850, a level it needs to overcome to extend the bullish run to bring 1.30 the psychological level into play.

On the downside, support can be seen at 1.2680, the May high, with a break below here exposing the 20 sma at 1.2580.

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DAX falls for a fourth day ahead of PMI data

The Dax is pointing to a weaker start after booking losses in the previous session, pulled lower by a souring market mood ahead of PMI data.

Concerns over the global economic outlook intensified this week after larger-than-expected rate hikes from the Bank of England and Norges central bank spooked investors. A hawkish-sounding Federal Reserve chair Jerome Powell also weighed on risky assets.

On his second day before Congress, Powell reiterated that interest rates need to go higher to tame inflation, with a long way to go to beat inflation. He added that the Fed doesn’t see rates coming down any time soon.

Looking ahead, German PMI data will be in focus and is expected to show that manufacturing contracted again at 43.5, down from 43.2. The level 50 separates expansion from contraction. Services PMI is expected to expand at a slower pace falling to 56.2.

ECB board members Fabio Panetta and Luis de Guindos are due to speak and could shed more light on the future path for rate hikes. Fed speakers later today could also move the dial. Investors will be looking to see whether they support Fed Powell’s hawkish stance.
 

DAX outlook - technical analysis

DAX has fallen across the past four sessions, breaking out below its 50 sma and its multi-month ascending channel. The combined with the RSI below 50 keeps sellers hopeful of further losses.

Support can be seen at 15625, the May low. A break below here opens the door to 15000 round number.

On the upside, 15970, the rising trendline resistance, is a key hurdle, and a close above this level could keep buyers hopeful of a rise to 16430, the all-time high.

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