DAX, USD/JPY Forecast: Two trades to watch

DAX rises as the tech trade rebounds

• Tech trade recovers after Nvidia gains
• German consumer confidence falls to -21.6 from -21
• DAX grinds higher, guided by the 100 SMA

The DAX is rising after a positive close on Wall Street, and despite weaker signs of the economic recovery in Germany, it is losing momentum.

The broad market mood is upbeat as the selloff in chip stocks paused and the tech trade rebounded on Wall Street. Nvidia’s roller coaster ride continued after the share price rebounded by 6% yesterday, following a 6% fall on Monday. Tech stocks are among the top performers today in Europe.

Investors are shrugging off, GFK consumer confidence data which unexpectedly fell to -21.6 in May, down from a downwardly revised -21 in April. Expectations had been for morale to brighten slightly to -18.9.

The data comes after the German business climate index was also weaker than expected and after disappointing PMI data at the end of last week.

Recent data from Germany suggested that the economic recovery from last year’s downturn is losing momentum, which could encourage the ECB to cut interest rates again.

The ECB cut rates by 25 basis points in June but refrained from committing to another rate cut due to concerns over the strong labor market and high wage growth. However, a weakening German economy and signs that the recovery is stagnating could cause the ECB to move again in the coming months. A lower interest rate environment would be beneficial for households and businesses.

Meanwhile, gains in the DAX could be limited as political uncertainty remains ahead of the French elections at the weekend.

DAX forecast – technical analysis

After falling to a low of 17950, the DAX is grinding higher, guided northwards by the 100 SMA. Buyers will look to extend this recovery above the 50 SMA as it looks towards 18645, the April high.

Sellers will need to take out the 18000 level to extend losses towards 17800, which is the May low.

USD/JPY tests intervention levels

• Yen weakens further despite verbal warnings of intervention
• USD lifted by hawkish Fed chatter & EUR weakness
• USD/JPY flirts with 160.00

USD/JPY is once again in intervention territory, hovering just below the 160 level that sparked Japanese authorities' move earlier this year. The yen weakened despite Japanese authorities' verbal warnings regarding excessive volatility in the currency.

The yen has weakened since the June BoJ meeting, where policymakers disappointed the market by failing to tighten monetary policy.

Meanwhile, the US dollar is moving higher versus its major peers, trading around a two-month high ahead of Friday's inflation data. The USD benefits from weakness in the EUR amid political uncertainty ahead of the French election.

The USD has also been backed by US economic data and hawkish Fed speakers. Friday’s PMI data showed strong growth in the service sector.

Today, the economic calendar is relatively quiet. The focus will be on Fed speakers. Yesterday Fed official Michelle Bowman warned that the central bank may not cut interest rates this year.

The market is still pricing in two rate cuts this year, more than the one the Fed projected in its June meeting.

USD/JPY forecast - technical analysis

USD/JPY has risen above the multi-month rising trendline and is flirting with resistance at 160.00. Buyers will look for a rise above this level this level to fresh highs.

However, the market will be jittery around here amid the risk of intervention, which could result in consolation. The RSI is also tipping into overbought territory.

Support can be seen at 158.75, the weekly low. Below here, 158.00, the May high, comes into play ahead of 157.70, the late May high.