FTSE, EUR/USD Forecast: Two trades to watch

FTSE 100 rises for a sixth day despite more tariff threats

• UK public sector borrowing jumps to £17.8 billion
• Trump warns of tariffs on China & the EU
• FTSE looks towards 8600

The FTSE 100 attempts to push higher for a sixth straight session, although it lags behind its European peers. Investors weigh up the latest comments from Trump as he stirs the tariff pot. While the mood in the markets has been supported by the fact Trump has refrained from implementing universal trade tariffs on goods entering the US, a level of caution is also apparent as daily comments from Trump influence the market. 

Trump’s threats of trade tariffs on China and the European Union could limit the upside. Trump warned that his administration is considering 10% tariffs on China. Miners on the FTSE trade in the red.

UK government data showed a larger-than-expected budget deficit in December due to higher debt interest costs and one-off purchases of military homes. The data highlights the fiscal challenges faced by chancellor Rachel Reeves.

UK government borrowing rose to £17.8 billion in December, well ahead of the £14.1 billion forecast.

In corporate news, EasyJet is falling 3% as investors failed to cheer a smaller operating loss in Q1 thanks to easing fuel costs and strong demand for traveling and holiday packages.

FTSE 100 forecast – technical analysis

The FTSE broke out of range, pushing above 8480, the May 2024 high and previous record peak, to scale above 8500 to fresh record levels of 8575. Buyers will look to extend these gains towards 8600 and beyond. Although the RSI is in overbought territory, buyers should be cautious; there could be a period of consolidation or even a move lower coming.

Support is at 8480, the May 2024 high, and below here, 8400 horizontal support.

EUR/USD stalls on Trump’s tariff uncertainty

• Trump threatens EU trade tariffs
• ECB’s Klaas Knot sees few obstacles to a rate cut next week
• EUR/USD stalls at 1.04 but bullish bias remains

EUR/US is holding small losses around the 1.04 figure in early European trade, under pressure following President Trump's tariff threats, which help the USD rebound.

Trump stirred the tariff pot, threatening to impose duties on goods imported to the US from the EU.

While the euro has benefited since Trump's inauguration, given that he didn't impose blanket tariffs on his first day as President, this suggests a more selective focus.

However, ECB president Christine Lagarde warned that Europe must be prepared and anticipate potential trade tariffs from Trump. The European Union's commissioner for the economy, Valdis Dombrowski, said the EU would respond proportionately if tariffs were applied.

In addition to worries regarding tariffs, the euro is also under pressure amid dovish commentary from ECB policymakers.

ECB policymaker Klaas Knot said he sees little obstacles to another rate cut next week. He highlighted encouraging data, which confirms that inflation is returning to The ECB is expected to cut rates by 25 basis points at the end of January and cut by a further 75 basis points across the rest of the year.

Meanwhile, the US dollar is pushing higher, recovering some of yesterday’s losses after trade tariff talk. More aggressive trade tariffs are considered inflationary and could prevent the Fed from cutting rates as much as expected.

U.S. economic calendar is quiet to the attention will be on further actions from President Trump.

EUR/USD forecast – technical analysis

After recovering from a low of 1.0177 on January 13, EUR/USD rose above 1.0340, the November low, before running into resistance around 1.0450 zone, the 50 SMA and horizontal resistance. Still the bullish picture remains in tact.. A rise above here creates a higher high, bringing 1.06 into focus.

Support is at 1.0340, with a break below here opening the door towards 1.0177 and parity.