GBP/USD rises with UK politics & PMI data in focus
The pound briefly spiked towards 1.13 before paring those gains. The move came after Kwasi Kwarteng tweeted, suggesting that the top rate tax cut would be scrapped.
The U-turn makes the government look incompetent, which is less than favourable for the pound. However, it is worth noting that that particular tax cut only accounts for a small part of the Chancellor’s huge unfunded tax giveaway, which sent the financial markets into turmoil last week.
Looking ahead, attention will now turn to UK PMI data which is expected to confirm that UK manufacturing activity slowed again in September but by less than in August. The PMI is expected to be 48.5, down from 57.3.
Looking out to the US session, US ISM manufacturing PMI data is expected to show that activity expanded at a slower pace. Stronger than forecast manufacturing data could boost the USD.
Where next for GBP/USD?
GBP/USD is extending the rebound from 1.0350, the record low, bringing the RSI out of the oversold territory and running into resistance at 1.13 the 20 sma.
Buyers will need to rise above 1.13 to extend the recovery towards 1.1407, the March 2020 low, negating the near-term downtrend.
Failure to retake the 20 sma could see the pair drop towards 1.1025, Friday’s low, and 1.10, the psychological level.
DAX drops as energy crisis and recession fears deepen
After falling 3.5% last week, the DAX is falling further on the open on Monday as the energy crisis in Europe deepens and concerns over recession rise.
Russian state-controlled Gazprom suspended natural gas deliveries to Italy, escalating the energy crisis. European ministers will meet again this week to discuss how best to tame soaring energy prices.
Inflation in the region jumped into double digits at 10% as energy prices surged 40% across the year.
Attention will now shift to German manufacturing PMI data, which is expected to fall to 48.3 in September, down from 49.1. The level 50 separates expansion from contraction. Weaker than forecast activity could boost recession fears further.
Where next for the DAX?
The DAX has been trending lower, forming a series of lower highs and lower lows. The price broke down to a new 2022 low of 11810. The RSI supports further downside while it remains out of oversold territory.
Sellers will look to take out the 11810 low to extend the bearish move towards 11300, the October 2020 low, and 11000 round number.
Buyers could look for a move over 12400, the March low to bring 12600, the September 1 low, and the 20 sma in focus, with a rise over here negating the near-term downtrend.