DAX, USD/JPY Forecast: Two trades to watch

DAX tumbles as Trump applies trade tariffs to Mexico, Canada &China. Is Europe next?

The DAX and European shares are selling off on Tuesday after U.S. trade tariffs on Canada, Mexico, and China fuelled concerns that similar tariffs may be imposed on Europe.

The DAX is underperforming its European peers falling 1.7% at the time of writing, compared to a 0.5% decline on the FTSE 100.

President Trump went ahead with 25% trade tariffs on Mexico and Canada and a further 10% trade tariff on China, taking total tariffs on the world's second-largest economy to 20%. Not only are these tariffs raising concerns over the global economic outlook, but they also make a move by Trump to apply trade tariffs on Europe more likely.

Last week, President Trump warned again about Europe's trade surplus with the US, paving the way for tariffs.

Shares and automakers, which are vulnerable to trade tariffs, are leading the sell-off, with Stellantis down 5%, BMW losing 4.5%, and Porsche tumbling 2.7%.

Meanwhile, defence stocks, which helped boost the DAX to a record high yesterday on the news of higher defence spending, are extending their gains today, with Rheinmetall up a further 1.1%.

The eurozone economic calendar is relatively quiet today, with just unemployment data showing that the unemployment rate remained unchanged in January at 6.2%, defying expectations of a slight increase to 6.3%.

The data won't impact the ECB's decision on Thursday, where policymakers are expected to support another 25 basis point rate cut. Expectations of low interest rates have helped drive the DAX higher in recent months.

DAX forecast – technical analysis

After briefly spiking to a fresh record high of 23,311 yesterday, the DAX has rebounded lower, falling 1.7% at the time of writing to 22680. While the longer-term uptrend remains intact for now, a bearish engulfing candle and a break below support at 22,180 could create a lower low.

Buyers would need to rise above 23,000 to bring 23,311 and fresh record highs into play.

USD/JPY falls as the USD drops on trade tariff news

USD/JPY is under pressure following Trump's announcement of trade tariffs on Mexico, Canada, and China and following China's retaliatory levies.

The yen is benefiting from safe-haven demand and bets that the BoJ will hike rates further. It has risen 4% so far this year amid stronger inflation data, which has pointed to more rate hikes.

The US dollar is falling, tracking treasury yields lower, as investors consider the potential impact of higher tariffs on the US economy. While trade tariffs were expected to lift the USD owing to expected inflationary pressures, recent data has raised concerns over the economic outlook.

Factory gate prices jumped to a 23-year high, and material deliveries were taking longer, suggesting that tariffs on imports could hamper production.

Data last week also suggested that business and consumer confidence were weakening amid concerns over the Trump administration’s trade tariffs.

Looking ahead, the US economic calendar is relatively quiet today, with attention on Fed speakers, including Fed Barkins and Fed Williams.

Tomorrow, attention will be on ISM services PMIs and the ADP employment change ahead of Friday's nonfarm payroll report.

USD/JPY forecast – technical analysis

USD/JPY has been trending lower from 158.80 high on January 10, trading in a falling channel. The RSI is below 50, supporting further losses. The price is testing support at 148.70, the December low, a break below here opens the door to 145.00 round number.

Should this support hold, buyers will look to rise above 150.80 the 50% Fib retracement of he 162 high and 139.50 low. A rise above here negates the near-term sell-off and exposes the 200 SMA at 152.35.

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