DAX, USD/JPY Forecast: Two trades to watch

DAX falls as China disappoints

• China failed to announce fresh stimulus
• German industrial productions rebound +2.9%
• DAX tests 19k support

The DAX, along with its European peers, is heading flower amid a risk-off tone as China returns from a week-long holiday.

While the Chinese rally continued, it cooled, and Hong Kong fell as Chinese officials held back from unleashing yet more stimulus or providing further details. Automobile makers are under pressure and more broadly in Europe luxury stocks and miners were dropping, hurt by the disappointment from China.

On the data front, German industrial production rebounded by more than expected, rising 2.9% month on month ahead of the 0.2% increase, recovering from a jump the month earlier.

The report comes after factory orders slumped yesterday by 5.8% in the steepest decline since the start of the year and, as the German government forecasts, point to a likely stagnation or even a contraction in the economy in 2024.

Considering this, the increase in German industrial production in August did little to counteract growing evidence that the economy is stuck in a recession.

Meanwhile, worries over tensions in the Middle East also remain a drag on sentiment as well as expectations the Fed may not cut rates as quickly as initially expected.

DAX forecast – technical analysis

The DAX reached an all-time high of 19480 at the end of September and corrected lower, testing support at 19k, the August high, and also the rising trendline support.

A break below 19k negates the near-term uptrend and brings 18500, the 50 SMA, into focus ahead of 18300, the September low. A break below here would create a lower low.

Meanwhile, should 19k support hold, buyers will look to 19480 and fresh all-time highs.

USD/JPY falls as the USD eases from a 7-week high

• USD slips but remains supported by lower Fed rate cut expectations
• FOMC minutes & CPI data are due this week
• USD/JPY eases back from 149.00

USD/JPY is falling as the USD eases away from a seven-week high and the yen regains some lost ground from the previous weeks.

The U.S. dollar is edging lower but remains supported after the stronger than expected US NFP report on Friday, boosted expectations that the Federal Reserve may not cut interest rates as fast as initially expected.

The market is pricing in an 80% probability that the Federal Reserve will raise interest rates by 25 basis points in the November meeting. However, the market is also pricing in a 19% possibility that the Fed may leave interest rates on hold in November.

While the US economic calendar is quiet today, several Fed speakers will be hitting the airwaves ahead of the FOMC minutes tomorrow and US inflation data on Thursday, which could give more clues over the Fed's next move.

Meanwhile the Japanese yen is heading higher for a second straight day after suffering steep losses in the previous week.

The yen was pulled over 4% lower last week as the market rained in Bank of Japan rate hike expectations after more dovish comments from the newly elected PM.

However, overnight, mixed data from Japan appears to be offering some support after household spending and wage growth fell by less than expected.

USD/JPY forecast – technical analysis

USD/JPY extended its recovery from 139.60, running into resistance at 149.13 and correcting lower.

Buyers supported by the RSI above 50 will look to extend gains towards 151.00, the 200 SMA, and 152.00, the rising trendline resistance dating back to 2022. Above here, 153.40 comes into play.

On the downside, should sellers take out 146.50, the March low, a move towards 145.00, the round number, and 50 SMA, could be on the cards? A break below here opens the door to 141.70, the August low.