GBP/USD, DAX Forecast: Two trades to watch

GBP/USD falls after dismal sales 

• Retail Sales 3.2% MoM Dec vs 1.4% 
• US Michigan Consumer Sentiment 70 vs 69.7 expected 
• GGBP/USD rebounds from 1.26 

The pound is falling after UK retail sales fell at the fastest pace since the pandemic lockdown three years ago, fueling concerns that the economy could slide into a shallow recession. 

UK retail sales fell 3.2% MoM in December, worse than the 0.5% drop that economists had forecast. This comes after an upwardly revised 1.4% MoM growth in November when Black Friday sales supported sales. 

The data points to a picture of a stagnating economy as 15-year high interest rates and still high inflation mean households are still being squeezed. 

The data contrasts sharply with the picture in the US, where shoppers spent heavily in the build-up to Christmas and across the holiday period, helping US retail sales rise to beat forecasts. 

GBP/USD fell after the data, highlighting the divergence between the two economies. The market is pricing in the first rate cut by June and more than 1% worth of cuts in 2024. 

Meanwhile, the U.S. dollar is set to rise across the week, marking its second straight week of gains. The USD has been boosted by a series of solid U.S. macro data points highlighting the resilience of the economy, which supported Federal Reserve commentary pushing back on early rate cuts. 

Looking ahead, US Michigan sentiment data is expected to tick higher. Federal Reserve speakers could also influence the USD. 

GBP/USD forecast – technical analysis 

GBP/USD continues to trade within a familiar range. The price rebounded off support at 1.26, and gains are capped by the 20 SMA at 1.27. Buyers will look for a rose above here to bring 1.2785, the January high, into focus, ahead of 1.2830, the December high. 

Should sellers successfully defend the 20 SMA, the price could test 1.26 again. A break below here exposes the 200 SMA at 1.2550. 

DAX rises for a second straight session 

• Germany's PPI fell to -1.2% MoM 
• ECB Lagarde to speak  
• DAX tests 20 SMA resistance 

The DAX and its European peers are signaling a modestly higher open on Friday, adding to gains in the previous session and helped higher by a record high on the NASDAQ 100. 

On the data front, the German PPI showed a 1.2% school after falling 0.5% in November. This was ahead of forecasts of a 0.5% fall. The data bodes well for a continued fall in CPI inflation but also highlights the weakening. 

The data comes after the minutes of the ECB meeting showed that policymakers were concerned over the outlook for the economy but did not mention any rate cuts. 

Looking ahead, ECB president Christine Lagarde is due to speak again and will likely reiterate that the central bank is on track to lower inflation to its target 2% level, but the job has not been done. Earlier in the week, she also hinted at a summer rent. 

Looking ahead to the US market sentiment could also be influenced by US Michigan sentiment and remind head speakers. 

DAX forecast – technical analysis 

The DAX found support on the 50 SMA and has rebounded higher. The price is testing resistance at the 20 SMA at 16665. Buyers will need to rise above here to extend gains towards 16840, last week’s high, and 17000, the all-time high. 

Support can be seen at 16400, the 50 SMA, and 16350. Below here, sellers could test 16000 round number.