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EUR/USD, DAX Forecast: DAX Surges to record highs as EUR/USD Consolidates

Article By: ,  Head of Market Research
May 10, 2024 1:54 AM

EUR/USD, DAX Key Points

  • Optimism about falling interest rates and solid corporate performance has boosted the DAX to record highs above 18,600.
  • The DAX is supported by its relatively high allocation to sectors showing strong performance like Industrials (25%) and Technology (16%)
  • EUR/USD is bouncing off near-term support at 1.0.0730, but 5-month bearish trend line resistance looms at 1.0800

There are no two ways about it: This week’s economic calendar is completely bereft of major macroeconomic data out of Europe, leaving traders to digest developments from other major economies, some of the second-tier earnings reports, and any relevant technical considerations to guide their trading decisions this week.

Against that backdrop, it’s perhaps not surprising to see that EUR/USD is trading essentially unchanged week-to-date as trader try to pick up breadcrumbs from ECB policymakers in a holiday-shortened week. On balance, central bankers appear to be heavily favoring an interest rate cut next month, with commentators noting that growth remains muted (GDP +0.3% I Q1, the strongest since Q3 2022), despite a slight improvement to start this year.

Though the price action in the euro has been subdued this week, optimism about imminent interest rate cuts has helped boost Germany’s benchmark DAX index to a fresh record high above 18,600. In addition to hopes of lower rates, the German index has also been bolstered by strong earnings results from semiconductor manufacturer Infineon, a top 10 holding that is now trading more than 15% higher on the week.

From a sector perspective, the DAX features a reasonable allocation to Technology stocks (~16%) as well as a relatively high weighting in Industrial stocks (~25%), which have been strong outperformers of late, suggesting that the rally could extend further as long as those sectors remain in investors’ good graces.

Euro Technical Analysis – EUR/USD Daily Chart

Source: TradingView, StoneX

Looking first at the chart of EUR/USD, the pair remains in a medium-term downtrend of its December high near 1.1100. From a shorter-term perspective, the pair is forming a Bullish Engulfing Candle off 1.0730 today’s price action; for the uninitiated, a Bullish Engulfing candle is formed when the candle breaks below the low of the previous time period before buyers step in and push rates up to close above the high of the previous time period. It indicates that the buyers have wrested control of the market from the sellers and shows potential for more upside in the coming days.

To the topside, the resistance area to watch comes from the 5-month bearish trend line near 1.0800, with bulls looking for a confirmed break above that zone before growing more constructive on the pair. A break below previous support/resistance at 1.0730 would flip the near-term bias back in favor of the bears heading into next week.

German DAX Technical Analysis – DAX Daily Chart

Source: TradingView, StoneX

In index land, Germany’s DAX has little but blue skies above current prices. The goldilocks combination of solid corporate performance and (likely imminently) falling interest rates drove the DAX above the previous record high at 18,600. As long as prices can remain above that level of previous-resistance-turned-support, the path of least resistance for the German index will remain to the topside, with bulls eyeing the 19,000 round number as the next logical target.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

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