DAX, GBP/USD Forecast: Two trades to watch

DAX rises as tech jitters calm & attention turns to the ECB rate decision

ASML beats forecast boosting tech
ECB is expected to cut interest rates by 25 bps tomorrow
DAX trades at all time highs

The DAX and its European peers are opening positively on Wednesday as worries over Chinese startup DeepSeek disrupting the AI sector fade in time for big tech earnings and the Fed rate decision later today.

Europe's AI darling ASML, which had been hard hit by worries over China's low-cost AI model from has jumped 9% after strong quarterly earnings. The figures should help other chip sector stocks recover from recent losses. Nvidia is also up 3% pre-market after 9% gains yesterday. Attention will now turn to earnings from big tech including Tesla, Microsoft, and Meta, later today.

The DAX trades around all-time highs owing in part to expectations that the ECB will continue cutting interest rates. When the ECB meets tomorrow, it is expected to reduce rates by 25 basis points and signal further rate cuts.

Optimism surrounding the AI recovery and further ECB rate cuts is overshadowing German consumer confidence data, which was weaker than expected.

Consumer sentiment fell in February to -22.4 from -21.4 in January and below expectations of -20 as economic and income expectations deteriorated.

DAX -forecast technical analysis

The DAX has recovered from Monday’s spike lower, rising back above the upper band of the rising channel to record highs above 21,500. The RSI is well into overbought territory, so some consolidation or a move lower could take place.

Immediate support can be seen at 21,000, the weekly low ahead of 20,500. A break below 20,500 creates a lower.

Meanwhile, buyers could look to extend gains towards 22k.

GBP/USD edges higher ahead of the FOMC rate decision

Fed is expected to leave rates at 4.25%-4.5%
Chancellor Rachel Reeves is set to announce a productivity drive
GBP/USD recovers towards 1.25

GBP/USD is heading higher towards 1.2450 amid a slightly softer USD as the market mood improved, and investors look ahead to the Fed’s interest rate decision later today.

Risk appetite is improving as the US stock market recovers following Monday's DeepSeek’s AI-inspired sell-off. The brighter risk tone supports GBP, while bringing USD lower after two days of gains.

Attention is now firmly on the Fed's rate decision, which will be announced at 19;00 GMT. The market is fully pricing in expectations the Fed will leave interest rates on hold at 4.25% to 4.5%. The Fed cut rates by 100 basis points last year and is expected to slow the pace of cuts this year. Attention will be on the Fed's guidance over how long it will keep borrowing costs at the current level.

Investors will also pay attention to what the Fed says regarding US President Trump's tariff plans and their potential impact on the monetary policy outlook and inflation. 25% trade tariffs on Mexico and Canada from February 1 are still a very real possibility, and a 10% tariff on China could be in place by the weekend.

Meanwhile, the pound is finding some support from optimistic comments from UK Prime Minister Keir Starmer regarding the outlook for the UK economy. The pound is now looking to comments from Chancellor Rachel Reeves, who is due to speak on Wednesday and announce new productivity schemes to boost growth after the economy flatlined in the second half of 2024.

GBP/USD forecast – technical analysis

GBP/USD rebounded from the 2025 low of 1.21, breaking out above the falling channel, and ran into resistance at the 50 SMA above 1.25. This, combined with the RSI above 50 keeps buyers hopeful of further gains.

Buyers will look to rise above the 1.25 resistance zone; above here, 1.26 comes into focus.

Support can be seen at 1.2375, the upper band of the falling channel and the confluence of the falling trendline dating back to 2007. Below here 1.23, the 2024 low comes into play.

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