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GBP/USD rises as the UK economy contracts. DAX rises to 5-month high post-US inflation; China COVID measures ease.
 

GBP/USD rises as the UK economy contracts

GBP/USD is rising to add to gains of 1.7% from yesterday after cooler-than-forecast US inflation data sparked a huge move in risk assets and pulled the USD over 2% lower.

Today data revealed that the UK economy contracted by less than forecast in the July to September period. Q3 GDP shrank -0.2% QoQ, ahead of the -0.5% QoQ contraction expected, but down from 0.2% growth in Q2.

This is expected to be the start of a recession which the BoE forecasts will last until the end of 2023.

Delving deeper into the numbers, the data showed that GDP contracted by 0.6% in September alone. Consumer spending and business investment fell in the quarter.

The outlook for the consumer remains weak as inflation remains high, and the BoE is expected to keep hiking interest rates, intensifying the squeeze on the consumer.

The USD continues to fall, extending the selloff from yesterday as investors reposition for a less aggressive Federal Reserve. US Michigan consumer confidence data is due, and investors will be watching to see if morale improved in October as inflation cooled.
 

Where next for GBP/USD?

GBP/USD has risen over the 100 sma and 1.1720 the September high, which along with the RSI above 50 keeps buyers optimistic of further upside. Buyers will now look to rise over 1.1930 the June low and late August high, to bring 1.20 round number back into focus.

Failure to hold over the 100 sma at 1.1650 could see the pair slip back to 1.1520 the falling trend line support.

(Click on image to enlarge)

DAX rises to 5-month high post-US inflation; China COVID measures ease

While inflation cooled in the US, there are no signs of falling inflation in Germany. Instead, German inflation confirmed the record 11.6% YoY level in October as energy prices surged.

However, the DAX has shrugged off the data and is rising along with other risk assets in Europe as investors continue digesting the cooler-than-expected US inflation data and news that China has eased some COVID restrictions. For example, foreign travelers’ quarantine has been reduced by two data. The Hang Seng jumped 7% on Friday.

The risk on mood continues based on hopes of a less aggressive Federal Reserve and that China could be moving away from its strict zero-COVID policy.

Looking ahead, ECB officials are due to speak, and the European Commission will release its economic growth forecasts.
 

Where next for the DAX?

The DAX has powered above its 200 sma and the 14,000 psychological level, hitting a 6-month high. The RSI is in overbought territory so there could be some consolidation or even an easing lower in the price.

Buyers will look for a rise above 14500 round number and 14700 the June high to extend the bullish trend.

Sellers will look for a move below the 200 sma and 14000 level to negate the near term uptrend and expose the falling trendline support at 13100.

(Click on image to enlarge)

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