EUR/USD outlook, DAX outlook: Two trades to watch

EUR/USD rises ahead of the ECB rate decision

• Fed hikes rates by 25 bps and could pause in June
• ECB likely to hike rates by 25 bps, but 50 bps can't be discounted
• EURUSD bulls need to rise above 1.1095 to extend gains

EUR/USD is rising for a third consecutive session amid USD weakness after the Fed hiked rates by 25 basis points as expected.

Federal Reserve Chair Jerome Powell also signaled that the central bank could pause rate hikes in order to assess the impact of the steepest hiking cycle since the ‘70’s on the economy, particularly the banking sector, which has been showing increasing signs of strain. Overnight PacWest Bancorp ran into trouble, highlighting the precarious health of the sector. Concerns over the debt ceiling are also weighing on the USD.

Today the focus is on the ECB, which is expected to discuss both a 25 and 50-basis-point rate hike. The market expected the ECB to hike by 25 bps, taking the rate to 3.25%, after core inflation cools for the first time in 10 months to 5.6% and as credit conditions tighten. However, with still well above the central bank’s 2% target and wage growth still rising, a 50 basis point hike can’t be discounted.

Investors will also be looking for signs that the hiking cycle is nearing its conclusion. The market expects the peak rate to reach 3.75%.

In addition to the ECB meeting, eurozone composite PMI data (final) and US jobless claims figures are in focus ahead of tomorrow’s ECB rate decision.

EUR/USD outlook: technical analysis

EUR/USD continues to be guided higher by the 20 sma. Buyers will need to rise above 1.1095 the 2023 high and 1.1115, the rising trendline support to extend the bullish trend towards 1.1185 the March 2022 high.

Sellers could be encouraged by the RSI bearish divergence, which suggests that the rally is running out of steam. Immediate support can be seen at the 20 sma at 1.0990, with a break below here opening the door to 1.0940 the weekly low and 1.09 last week’s low. A break below here exposes the rising trend line support at 1.0860.

DAX falls ahead of ECB, PMIs and a big day for corporate earnings

• DAX falls after losses on Wall Street
• ECB, PMIs & corporate earnings from Volkswagen, BMW, Infineon
• DAX tests support at 20 sma

The DAX is pointing to a weaker open, after gains of 0.56% in the previous session and losses on Wall Street overnight.

Investors are cautious after the Fed hiked rates to 5% -5.25% and ahead of the ECB decision, where the central bank is expected to raise rates for a seventh straight meeting.

In addition to the ECB rate decision, the German composite PMI finalised is expected to confirm the preliminary reading of 53.9, up from 52.6 in March.

Meanwhile, eurozone PPI data is expected to cool considerably to 5.9% from 13.2% in February.

Today is also a busy day on the corporate calendar. Volkswagen, BMW, and Infineon are big names on the DAX which are set to deliver results.

Looking further ahead to the US session, US jobless claims could influence the market mood. Weak labour data could fuel bets that the Fed will pause the monetary policy tightening.

DAX outlook: technical analysis

The DAX trades within a rising wedge. The price ran into resistance at 16011 and eased back to the 20 sma support which it is currently testing. Should buyers successfully defend the 20 sma, the price could look to retest 16011 the 2023 high. A break above here brings 16300, the January 2022 high into play and 16800 the rising trendline.

Meanwhile, the bearish RSI divergence keeps sellers hopeful of further downside. A break below the 20 sma brings the rising trendline support at 15600 into play and the 50 sma at 15488. A break below here exposes the 100 sma at 15160.