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DAX, GBP/USD Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
Today 9:26 AM

DAX rises, boosted by defence stocks

  • Defence stocks rise on EU plan to lift defence spending
  • Eurozone CPI is expected to ease to 2.3% vs 2.5% in January
  • DAX rises towards its record high.

The DAX, along with its European peers, has kicked off March on the front foot as it looks back up towards record highs.

Defence stocks are leading the gains after European leaders agreed on Sunday to lift defence spending and draw up a Ukraine plan to present to the United States.

A report that coalition parties in talks to form Germany's new government were also considering setting up a defence fund provided an additional boost.

Top rises on the DAX include Airbus MTU Aero Engineers AG and Rheinmetall.

On the data front, German manufacturing activity was upwardly revised in February, with the PMI at 46.5, up from the earlier reading of 46.1. Whilst this remains in contractionary territory, it does suggest that the contraction is slowing. Eurozone manufacturing PMI was also upwardly revised to 47.6, up from 47.3.

Today, attention will also be on the eurozone inflation data, which is expected to show that inflation is slightly down to 2.3% in February, down from 2.5% previously.

These data points come ahead of the ECB interest rate decision on Thursday, when the central bank is widely expected to cut interest rates by a further 25 basis points to 2.5%.

DAX Forecast – technical analysis

The DAX continues to trade above its multi-month rising channel, recovering from the 22180 low and heading back up towards 22,937 and fresh record highs.

Sellers would need to take out support at 22,180 to create a lower low but the DAX would still remain in the rising channel. Below here, 21,500 and 21,000 come into play. A break below 21,000 would negate the uptrend.

GBP/USD rises as USD safe haven appeal cools

  • Optimism of a Ukrainian peace deal lifts the market mood
  • UK & US manufacturing PMI data is due
  • GBP/USD remains below 1.27

GBP/USD is rising, snapping a 2-day losing streak as the U.S. dollar eases on safe haven outflows amid optimism over a truce between Russia and Ukraine.

Over the weekend, UK Prime Minister Kier Starner said European leaders had agreed to present a peace plan to the US. The meeting between European leaders, Keir Starmer and also Ukraine president Volodymyr Zelensky could be a big move towards ending the three-year war in Ukraine. Optimism of easing geopolitical tensions hit the safe haven appeal of the US dollar.

That said, concerns surrounding trade tariffs, as Trump is poised to apply tariffs on Canada, Mexico, and China from tomorrow, may prevent investors from taking big positions against the USD.

US ISM manufacturing PMI data is due later and is expected to ease to 50.8 in February from 50.9. The data comes after a slate of weaker-than-expected forward-looking US figures, which have raised some concerns over the outlook for the US economy. Weaker-than-expected data could fuel those worries.

The pound benefits from the risk-on mood and cautious comments from Bank of England Deputy Governor Dave Ramsden on Friday. Ramsden said the central bank should take a careful and gradual approach to management policy as inflationary pressures remain elevated due to persistent wage growth. The market has priced in 2 more interest rate cuts this year.

Looking ahead, UK manufacturing PMI data is due shortly and is expected to confirm the preliminary reading of 46.4. An upward revision could help lift the pound. The UK services PMI will be released on Wednesday.

GBP/USD forecast – technical analysis

GBP/USD extended its recovery from the 2025 low of 1.21, rising above the 50 SMA and 1.25. However, the recovery ran into resistance at 1.27.

Buyers, supported by the RSI above 50 will look to rise above 1.27 to expose the 200 SMA at 1.2790. Above here 1.30 comes into play.

Sellers would need to take out support at 1.25 to negate the near-term uptrend. Below here and the 50 SMA at 1.2460 opens the door to 1.2330, the November low.

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