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DAX, USD/JPY Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
June 18, 2024 9:37 AM

DAX rises as the mood improves, ZEW economic sentiment is due

  • ZEW economic sentiment to rise to 50 vs 47.1 previously
  • Political uncertainty in France is easing
  • DAX’s recovery lacks conviction

European stocks are heading higher, tracking gains in Wall Street and Asia overnight as the rebound from last week's sell-off continues.

Last week, equities fell sharply on political uncertainty after French President Emmanuel Macron called a snap election in France, which polls showed the right-wing national rally party could win.

However, as cooler heads prevail, concerns over increased spending and rising debt under a right-wing government may have been overdone.

Meanwhile, German ZEW economic sentiment is in focus and is expected to increase. This supports the view that the eurozone’s largest economy has turned a corner and helps risk appetite. ZEW economic sentiment is expected to rise to 50, up from 47.1.

Eurozone inflation data will also be in focus. It is expected to confirm that inflation rose to 2.6% YoY, up from 2.4%.

Meanwhile, ECB speakers, including Villeroy de Guindos, will also be in focus for further clues over whether the ECB will be cutting interest rates again after slashing rates by 25 basis points earlier in the month. Yesterday's data showed that Q1 wage growth in the eurozone was stronger than expected, suggesting that price pressures remain.

DAX forecast – technical analysis

The DAX found support on the 100 SMA and is attempting to push higher, although the recovery lacks conviction. 

Sellers will look to take out the 100 SMA at 18,000 to extend losses toward 17,700 and 17390, the April low.

A recovery would need to rise above the 50 SMA at 18300 to extend gains towards 18650, the April high.

 

USD/JPY rises above 158.00 ahead of Fed speakers & US retail sales

  • USD rises after hawkish Fed comments & with more speakers due
  • US retail sales are forecast to rise 0.3% MoM up from 0% in April
  • USD/JPY rises above 158.00

USD JPY is inching higher on the U.S. dollar as strength as the USD hovers around a 5-week high against its major peers.

The US dollar is being boosted by hawkish comments from Federal Reserve officials, including Philadelphia Fed President Patrick Harker, who said that one rate cut this year looks appropriate.

His comments reiterate those of Federal Reserve Minneapolis and Reserve President Neel Kashkari who said at the weekend that he sees one rate cut in 2024 as appropriate.

Looking ahead, US retail sales will be in focus to give some clues about the health of the US consumer. Retail sales are expected to rise 0.3% in May after coming in flat in April. Signs of a strong consumer could see the market rein in the rate cut expectations. While the Fed has guided for one rate cut, the market is still pricing in two this year.

As well as US retail sales, there are six Federal Reserve officials speaking who could provide further clues on the likelihood of rate cuts this year.

Meanwhile, the yen is falling, shrugging off comments from Bank of Japan governor Ueda, who said that the Bank of Japan will hike interest rates next month depending on data.

US/JPY is in intervention territory so traders could get jittery

USD/JPY forecast – technical analysis

USD/JPY has risen above resistance at 158.00 as it continues to grind higher, guided by the 50 SMA towards 160.00.

Immediate support is at 158.00, the May high. Below here, the 50 SMA comes into play at 155.70. A break below 155 is needed to create a lower low.

 

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