DAX, USD/JPY Forecast: Two trades to watch

DAX steadies around a record-high

Dax rose to a record high yesterday after Trump’s AI plan
ECB rate cut optimism supports the DAX
DAX hovers around record high of 21331

The DAX and its European peers have seen a muted start on Thursday. The optimism surrounding new AI investments in the US has eased after yesterday's surge, which saw the German index reach a fresh record high of 21331.

Still, the DAX is eyeing a seven-day rally amid optimism that the ECB could continue to cut interest rates and after upbeat corporate earnings, which together offset worries regarding U.S. trade tariffs.

It would seem that Europe is being spared from the first round of US tariffs, and Trump has indicated that a deal can be made if the EU buys more US oil, gas, and defense equipment.

Today, the focus is on eurozone consumer confidence, which is expected to improve slightly to -14.2, up from -14.5 in December. Weaker-than-expected data could reinforce the ECB's more dovish path, boosting demand for interest rate-sensitive stocks.

However, unexpected rising consumer confidence could raise questions about multiple ECB rate cut bets.

The central bank is widely expected to cut rates by 25 basis points next week and three more times in 2025.

Looking ahead, Trump's speech at the World Economic Forum will be the focus for more policy clues.

DAX forecast – technical analysis

The DAX trades within a rising channel dating back to early August. The price is probing the upper band of the channel, and the RSI is in overbought territory, so a period of consolidation or a move lower could be on the cards.

While the price remains above 20,500, the near-term bull trend holds. A break below this level could bring 20,000 into view, the psychological level and the lower band of the channel.

Meanwhile, should buyers break out above the upper band of the channel, 21,500 comes into focus ahead of 22,000.

USD/JPY holds steady ahead of Trump & BoJ

Trump will speak at the WEF in Davos
BoJ is expected to hike rates
USD/JPY consolidates above 155

USD/JPY is holding steady in a familiar range as investors await further direction from President Donald Trump at the World Economic Forum in Davos and from the Bank of Japan rate decision early on Friday.

The U.S. dollar has struggled for direction as President Donald Trump has refrained from making any concrete announcements on tariffs. Although he has mentioned possible tariffs against Mexico, Canada, China, and Europe, the language has been less hostile leaving the market questioning whether they will happen.

The US dollar had risen to a more than a two-year high of 110.17 ten days ago on the back of strong U.S. data and expectations of widespread US tariffs

Trump's less aggressive approach, particularly to China, and softer-than-expected policies and tone on tariffs have pulled the US dollar lower, although the outlook remains cautious.

U.S. jobless claims are also due and are expected to show a rise to 220K from 217K. A jump in initial claims last weak helped stocks higher.

Meanwhile, the market is pricing in a 96% probability of a 25 basis point rate hike from the Bank of Japan tomorrow. This would take the policy rate from 0.25% to 0.5%.

Expectations of a hike follow statements from Bank of Japan governor Ueda, who signaled rates could rise amid persistent inflation and rising wages.

Given that the move is almost fully priced in communication regarding the outlook will direct the yen. A hawkish tone from policymakers could help mitigate the recent decline.

USD/JPY- technical analysis

USD/JPY rebounded lower from 158.80, a 6-month high, finding support at 155 and the 50 SMSA. The RSI is neutral.

Buyers will look to extend the longer-term bull trend by rising above 157.10, the 78.6% Fib retracement level of the 162 high and 139 low. A rise above here opens the door to 158.80, which would create a higher high towards 160 and 162.00.

Support is seen at 155, the round number, and 50 SMA. Below here, 153.40 comes into focus, the 61.8% Fib retracement and the 200 SMA at 153.00.

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