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GBP/USD falls after a hawkish Fed and ahead of the BoE rate decision. DAX falls post-Fed and ahead of the ECB meeting.
 

GBP/USD falls after a hawkish Fed and ahead of the BoE rate decision

GBP/USD is heading lower as the Federal Reserve flagged more rate hikes ahead and as the Bank of England, interest rate decision comes into focus.

The Fed, as expected, raised interest rates by 50 basis points, taking the benchmark lending rate to 4.5%, its highest level since 2007. The Fed dot plot also indicated that rates would rise higher in 2023 to a terminal rate of 5.1%, up from the 4.6% forecast in September. Federal Reserve chair Jerome Powell also said that there was still work to be done to rein in inflation, suggesting that any dovish pivot was still a way off.

Today attention is on the Bank of England, which is expected to raise interest rates by 50 basis points taking the benchmark rate to 3.5%. The move comes after a 75 basis point hike in the November meeting and as the UK economy tips into recession.

While inflation in November showed signs of cooling thanks to falling oil prices and a stronger GBP, however, accelerating wage growth suggests that inflation could prove to be sticky.

In the last meeting, BoE Governor Andrew Bailey said that the market was overpricing the terminal rate. Is this still the case?
 

Where next for GBP/USD?

GBP/USD trades within an ascending channel dating back to early October. The price has risen above the 100 and 200 smas and the 100 sma is crossing above the 200 sma in a bullish signal. The RSI supports further upside while it remains out of the overbought territory.

Buyers will look for a rise over 1.2450, the weekly high, to bring 1.2620, the June high, into focus.

On the downside, immediate support can be seen at 12380, the December 5 high, with a break below here exposing the  100 & 200 sma at 1.2110

(Click on image to enlarge)

DAX falls post-Fed and ahead of the ECB meeting

The DAX is heading southwards after the hawkish message from the Federal Reserve weighs UN risk sentiment and amid caution ahead of the ECB rate decision.

After hiking rates by 50 basis points, the Fed warned that rates could peak at a higher-than-expected level as inflation is still running well above the central bank's 2% target.

The ECB is expected to raise interest rates by 50 basis points, down from 75 basis points at the last two meetings, as the eurozone economies head toward recession.

Inflation is starting to show tentative signs of cooling as CPI eased in October for the first time in 18 months, although it remains in double digits.

A 50 basis point rate hike would take the benchmark lending rate to 2%. The ECB forecasts a terminal rate of 2.5% in 2023. However, the market is pricing a 2.9% peak rate.

ECB governor Christine Lagarde is expected to reiterate that more rate hikes are needed. She is also expected to set out plans showing how the ECB intends to reduce its balance sheet from bonds accumulated under the asset purchase program during the pandemic.
 

Where next for the DAX?

The DAX has been trading in a holding pattern over the past month, capped on the upside by 14600 and on the lower side by 14125.  The RSI has come out of overbought territory but remains above 50. The 50 sma has crossed above the 100 sma in a bullish signal.

Buyers could look for a rise above 14600 and 14700, the June high, to attack 1496,0 the March high.

Sellers could look for a fall below 14150 to open the door to 14000 round number and August high. A break below here exposes the 200 sma at 13745.

(Click on image to enlarge)

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