GBP/USD, DAX Forecast Two trades to watch 81026

GBP/USD falls below 1.32 after hawkish Fed minutes, rising Treasury yields

GBP/USD is falling below 1.32, moving within striking distance of its lowest level since last June, which was briefly reached last week.

U.S. dollar strength remains a key driver of the pair, with the U.S. Dollar Index trading around an 18-month high following the Fed's hawkish outlook in its September minutes and as U.S. bond yields remain elevated.

The September meeting minutes showed broad support within the Federal Reserve for the 25-basis-point rate hike, while the majority of policymakers also saw another rate hike before the end of the year.

Meanwhile, oil prices are heading higher amid rising tensions in the Middle East. Treasury yields have also risen to fresh multi-decade highs, with the 10-year yield at 5.33%, its highest level since 2002, keeping the U.S. dollar supported.

Tight monetary policy from the Bank of England is offering some support to sterling and helping to limit further losses. Markets are pricing in a 91% probability that the BoE will hike interest rates by 25 basis points at its November meeting.

Bank of England Governor Andrew Bailey warned that higher energy prices could make it harder to leave rates on hold.

Looking ahead, the UK economic calendar is quiet, with attention turning to U.S. initial jobless claims.

GBP/USD Forecast – Technical Analysis

GBP/USD has fallen sharply from the 1.3675 August peak, dropping below 1.32. The price trades below its 50- and 200-EMAs, with the 50 EMA crossing below the 200 EMA in a death-cross signal.

Sellers will look to break below the 1.32 support zone. A break below 1.3150 would open the door to 1.31 and then 1.30.

Any recovery would first need to retake 1.3275, a level rejected yesterday. Above here, 1.3340 comes into focus, followed by 1.34 and the 200 EMA.

DAX falls for a second day, testing a key support as bond yields rise

The DAX is falling for a second straight session on Thursday, extending yesterday's losses as rising oil prices, heightened inflation concerns and higher bond yields weigh on European equities.

Oil prices have climbed further on reports that the White House is considering options for potential strikes on Iran ahead of the U.S. midterm elections.

Hawkish signals from the Federal Reserve's September meeting minutes are also adding pressure to equities. The Fed voted unanimously to hike rates by 25 basis points at the meeting, the first hike since 2023, while the majority also signalled that they see another rate hike before the end of the year.

Investors will now turn their attention to the ECB minutes from the September meeting for further clues on the central bank's policy outlook.

European banks are under particular pressure as bond yields continue to surge. The Euro Stoxx 600 bank sector is down 2.2% on Thursday after falling 3.3% yesterday, putting it on course for its largest two-day decline since March.

Deutsche Bank has fallen 18% from its high point last month.

The sell-off in banks comes amid concerns over France's fiscal deficit and political gridlock, which are weighing on European markets. Investors have been shunning French bonds, with the yield premium over German bonds rising to its highest level since 2011 last week, raising concerns about contagion across European bond markets.

Banks are typically among the first sectors affected when systemic risk rises. The sector has also performed strongly this year, so some profit-taking and a pullback are not unusual.

DAX Forecast – Technical Analysis

The DAX is trading within a falling channel. The price recently faced rejection at the 50 EMA around 25,560, before moving lower and testing support at the 200 EMA around 24,900.

Sellers, supported by an RSI below 50, will look to break below the 200 EMA to extend the downward move towards 24,650, the July low and midpoint of the descending channel. Below here, 24,000 comes into focus, the June low.

Should the 200 EMA support hold, buyers will need to rise above the 50 EMA around 25,500 to turn the outlook more constructive. Attention would then turn to 25,800, followed by 26,600 and the recent record highs.