DAX, GBP/USD Forecast: Two Trades to Watch

DAX eases lower after the ECB rally & ahead of German inflation

• DAX rallied after ECB hinted at a pause in hikes
• German inflation data due to cool to 6.2% YoY in July
• DAX supported by 20 sma, hovers near all-time high

Therapy and peers heading for a lower open on Friday following a surge in the previous session.

The DAX rallied 1.7%, pushing above 16,400 yesterday after the ECB policy announcement where the central bank signalled a pause and interest rate hikes could come as soon as September.

Risk sentiment was also boosted yesterday by strong U.S. economic data which suggested that the world's largest economy could avoid a recession.

Overnight the focus shifted to the Bank of Japan which made its yield curve control policy more flexible in a move that is being seen by some as a prelude to a shift away from its ultra-loose monetary policy. The move put pressure on Japanese stocks, and the Nikkei 225 fell 0.4% overnight.

Today attention in Europe is on the latest wave of earnings and German inflation data. German CPI for July is expected to cool to 6.2% YoY, down from 6.4%.

Cooler-than-expected inflation could fuel bets that the ECB won’t hike in September and boost stocks. However, sticky inflation could raise fears of another rate hike from the ECB as the outlook for the German economy deteriorates.

DAX forecast – technical analysis

The DAX rebounded off 15450 the July low, rising above the 20, 50 & 100 sma and hovering below its all-time high. The RSI is above 50, supporting further upside. Buyers will look for a rise above 16450 to extend the bullish run to fresh highs.

Support can be seen at 16050, the 20 and 50 sma confluence. A break below here exposes the 100 sma at 15800, and below here at 15450, the July low comes back into play.

GBP/USD hovers at a 3-week ahead of US inflation data

• Strong US GDP and jobless claims boosted the USD
• US core PCE & Michigan confidence is due
• GBP/USD support at 1.27

GBP/USD is hovering around a three-week low after steep losses in the previous session.

Yesterday's setup was all about dollar strength following upbeat macroeconomic data, which pointed to an extremely resilient U S economy and increased the likelihood that the federal we have only to raise interest rates again.

US GDP came in ahead of expectations and unexpectedly expanded by 2.4%, annualised in the April to June quarter, defying expectations of a fall to 1.8%. The economy was stronger than expected, thanks to a solid labour market that supported consumer spending. At the same time, businesses boosted investment in equipment which could keep every session in the US at bay.

Jobless claims were also stronger than expected, falling to 221 K in the week ending July 22. The data came after the Federal Reserve staff no longer forecast a recession in the world's largest economy and after the Fed chair, Jerome Powell left the door open for another 25 basis point rate hike before the end of the year.

Meanwhile, the pound is struggling to book gains amid diminishing expectations that the Bank of England will be able to continue hiking rates aggressively. After inflation cooled by more than expected last week, the market expects the Bank of England to raise interest rates by 25 basis points next week rather than the previously expected 50 basis points.

Today the UK economic calendar is quiet – attention will be on US core PCE, the federal reserve's preferred measure of inflation, which is expected to cool to 4.2% from 4.6%. Michigan consumer confidence will also be in focus and is expected to improve to 72.6 from 64.4.

GBP/USD forecast – technical analysis

GBP/USD failed to break out above its rising trendline resistance, instead ran into resistance at 1.30 and rebounded lower. The break below the 20 sma, combined with the RSI crossing below 50 keeps sellers hopeful of further losses.

Support can be seen at 1.27 the 50 sma and the rising trendline support. Below here, 1.26, the 30^th June low, could offer support.

On the upside, buyers will look for a rise over 1.2840, the June high, to extend gains towards 1.30, the psychological level.