EUR/USD, FTSE 100 Forecast: Two trades to watch

EUR/USD rises on USD weakness ahead of this week’s Fed meeting

• ECB cut rates last week to 3.5%
• Fed rate decision is on Wednesday
• EUR/USD rises above 1.11

EUR/USD is powering higher, adding to gains from the previous week. I made the U.S. dollar weakness as the Federal Reserve takes the central stage after last week's ECB rate decision.

Last week, the ECB cut its interest rate by 25 basis points to 3.5%, in line with expectations, and also lowered its growth forecast. ECB president Christine Lagarde acknowledged that the economic recovery continues to face headwinds but that upward risks to inflation remained. She also reiterated that decisions would be made on a meeting-by-meeting basis and policymakers remain data-dependent.

There were no major surprises from the ECB, and, as a result, the euro barely moved following the announcement. Instead, volatility in the pair has been a result of a falling USD.

The USD has come under further pressure as the market assesses the likelihood of a 50 basis point rate cut from the Federal Reserve this week. The market is pricing in a 50% probability of an outsized rate cut. However, this does mean that if the Fed cuts rates by a smaller 25 basis points, then that could help the US dollar stage a recovery. Either way, the fact that it's a 50/50 coin toss means volatility following the right decision is very likely.

The U.S. dollar trades at a 1 1/2-week low versus its major peers ahead of tomorrow's start of the two-day Fed meeting.

EUR/USD forecast – technical analysis

EUR/USD recovered from the September low of 110 and has rebounded higher rising above 1.11 as it heads towards the December 2023 high of 1.1140. Supported by the RSI above 1.11, buyers will look to rise above 1.1140 to bring 1.12, 2024 high, into play.

On the downside, immediate support is at the 1.11 round Number ahead of 1.10. A fall below 1.10 is needed to create a lower low.

FTSE holds steady ahead of central bank bumper week

• Chinese data highlighted weakness in the economy
• UK house prices rise as the mortgage market improves
• BoE, BoJ & Fed rate decisions this week
• FTSE trades in a holding pattern

UK stocks start the week on a cautious note after weak Chinese data over the weekend then ahead of a slew of central Bank rate decisions this week.

Data over the weekend showed that Chinese industrial production slowed for a fourth straight month, while retail sales grew at a slower pace, and home prices weakened further. The data boosts the case for aggressive stimulus from Chinese authorities to shore up the economy.

Miners are underperforming following the weak data with the likes of Rio Tinto and Anglo-American trading 1% lower

Separately, housebuilders are rising, boosted by data from Rightmove that house prices increased 0.8% in September after falling 1.5% in August. The data suggests that autumn activity has started early, as the mortgage market improves after the Bank of England cut rates by 25 basis points in August and is expected to cut again before the end of the year.

While the Bank of England and the Bank of Japan are expected to remain unchanged, the Federal Reserve will almost certainly lower its rates. The market is split over whether the Fed will cut by 25 basis points or 50 basis points. However an outsized rate cut could spook the markets prompting fears that the Fed is behind the curve.

FTSE Forecast – technical analysis

The FTSE 100 trades above a rising trend line dating back to the start of the year and continues to trade in a holding pattern capped on the upside by 8400 and on the lower side by 8150. The RSI is neutral at 50.

A breakout trade would see buyers waiting for a ride above 8400 to extend gains to 8480 and fresh all-time highs.

On the downside, sellers would look to take out 8150, the lower band of the holding pattern, and the rising trend line support to bring 8000 into play.