DAX, USD/JPY Forecast: Two trades to watch

DAX falls as China’s AI development unnerves the market

The DAX, along with its European peers, is sliding on Monday as the tech sector falls following China's DeepSeek unveiling a cheaper, more efficient AI breakthrough.

A low-power AI model from Chinese startup Deep Seek has sparked worries over profits and the need for costly chips.

DeepSeek has rolled out a free assistant that it says uses lower-cost chips and less data, raising questions about the view that the future of AI will require increasing amounts of power and energy to develop.

The company claims that its release offers a performance equal to open AI's latest. The market isn't interested in waiting to see whether these facts are verified, selling first and waiting for a verdict later.

Nvidia trades down 11% premarket, while tech stocks hurtle lower. The European tech index is down 5.8% and on track for its worst day since October 15th.

Frankfurt-listed ASML, which will also report on Wednesday, is over 10% lower. Siemens Energy, which provides electric hardware for AI infrastructure, has dropped 5%, and SAP is down 1.9%.

Meanwhile, on the economic calendar, the German Ifo index rose modestly in January at 85.1, up from 84.7 in December but still below 85.6 in November. The data is just another reminder that the country remains stuck in stagflation and is struggling to find a way out.

Despite the pullback, the DAX remains in an uptrend, as boosted in recent months by expectations that the ECB will continue to cut rates. The central bank will meet later this week and is expected to reduce rates by three percent 2.75% with more rate cuts expected across the year.

DAX forecast- technical analysis

After reaching a fresh all-timed high of 21,530 last week, the DAX has corrected lower, falling back into the rising channel within which it has been trading since early August. The move brings the RSI out of overbought territory. The upward trend remains intact while the price holds above 20,500.

A break below 20,500 opens to the door to support at 20,000.

Meanwhile, buyers will need to rise back above 21,530 to create a higher high and extend the bullish trend.

USD/JPY falls as trade tariff fears ease & safe haven yen demand grows

USD/JPY is falling amid a weaker USD and as the safe haven yen gains traction.

The pair has fallen to a monthly low on U.S. dollar weakness, and as sentiment sours in the broader financial market amid a rout in tech stocks. A surge in popularity of the Chinese discount AI model from DeepSeek has sparked a selloff across the tech sector. The NASDAQ 100 is trading over 4.5% lower.

The strengthening yen comes after the Bank of Japan raised its interest rates to a 17-year high last week but refrained from providing a specific policy tightening path, disappointing the market and prompting a sell-off in the yen at the end of last week.

Meanwhile, the US dollar has fallen to a monthly low as Trump has adopted a less hostile approach to trade tariffs than initially feared, particularly with China. There was no universal immediate tariff from Trump last week when he stepped into the White House, and his calls for a 25% trade tariff on Colombia were quickly put on hold. The Mexican peso, which is considered a barometer for trade tarif fears gained 1% last week.

This week, in addition to Trump's comments, major attention will be on the Federal Reserve's much-reported decision on Wednesday, where the Fed is expected to leave rates unchanged at 4.25% to 4.5%. Close attention will also be paid to the Fed's guidance on managing policy and two policymakers' views on Trump's calls for immediate rate cuts.

USD/JPY forecast – technical analysis

USD/JPY has broken below 155 horizontal support, the rising trendline support, and the 50 SMA to create a lower low, extending its decline from the 158.80 6-month high reached earlier this month.

The break below these supports, the bearish engulfing candle, and the RSI below 50 keep sellers hopeful of further losses.

Sellers will look to test support at 153.40, the 61.8% fib retracement of the 162 high and 139.5 low, and below the 200 SMA at 152.80.

Any recovery would first need to rise above 155 and 156.70 to negate the near-term weakness.

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