DAX, USD/JPY Forecast: Two trades to watch

DAX rises for an 11th straight session on rate cut optimism

• DAX extends its recovery on hopes of Fed & ECB rate cuts
• German PPI falls -0.8%
• Eurozone CPI is expected to rise to 2.6% YoY in July
• DAX rises towards July high of 18.8k

The DAX has opened higher and trades positively for an 11th straight session amid optimism surrounding a lower interest rate environment.

The Federal Reserve is expected to start cutting interest rates in September, and the market is also pricing in a 90% probability that the ECB could cut rates again next month. The ECB was among the first major central banks to cut rates in June, reducing rates by 25 basis points.

ECB policymaker Ollie Rehn said that the ECB might need to cut again in September owing to a weaker economic outlook.

Recent data from Germany and the eurozone has been mixed. Last week, German ZEW economic sentiment plunged, although eurozone growth remained at 0.3% in Q2.

German producer price data today showed that produce prices fell further in July, dropping -0.8% annually, less than the -1.6% fall seen in June.

Attention today will be on eurozone inflation data, which is expected to confirm the preliminary reading of 2.6% YoY in July, up from 2.5% in June. Negotiated wage rates for Q2 will also be in focus as Christine Lagarde has previously highlighted strong wage growth as a hurdle for cutting rates further.

DAX forecast – technical analysis

DAX has extended its recovery from the 17k August low, rising above the 200SMA and the 18k round number. This, combined with the RSI above 50, keeps buyers hopeful of further gains, bringing 18.8k, the July high, into focus ahead of 18.9k and fresh all-time highs.

On the downside, support is at 18k, and a break below here would expose the 200 SMA at 17.6k.

USD/JPY rises after steep losses yesterday, Fed speakers up next

• USD steadies at a 7-month low versus major peers
• US Fed speakers in focus ahead of Fed Chair Powell on Friday
• USD/JPY holds above 146.50

USD/JPY is rising, snapping a two-day losing streak as the sell-off in the US dollar steadies. The USD is hovering around a seven-month low versus its major peers. The U.S. dollar has tracked treasury yields lower in recent sessions amid growing expectations that the Federal Reserve will cut interest rates in September.

Federal Reserve chair Jerome Powell will speak at the Jackson Hole symposium on Friday, where he could offer more clues about the outlook for interest rates. While the Fed chair is expected to signal toward a cut, he is not expected to provide many details about how much the central bank will be cutting rates.

According to the CME fed watch tool, the market is fully pricing in a 25 basis point rate cut and sees a 25% probability of an a 50 basis point rate cut, down from 50% just a week ago.

There is no high-impacting U.S. economic data today. Attention will be on Fed speakers Bostic and Barr for further comments surrounding Fed rate cuts.

Meanwhile, the Japanese yen weakened slightly on Tuesday after a strong recovery in the previous session. Strength in the yen comes from a softer U.S. dollar, and as economic data from Japan points to the Bank of Japan having more headroom to raise interest.

USD/JPY forecast – technical analysis

USD/JPY rebounded from 141.70 low before running into resistance at 149.40, the 38.2% fib level, and the rising trend line resistance dating back to early 2023. From here, the price has corrected lower but is holding above 146.50, the 23.6% fib level.

Sellers will need to take out 146.50 to extend losses back towards 141.70, the August low.

Should buyers defend 146.50, the next level in focus will be 149.40 and 150 round number ahead of the 151.50-152.00 zone which is the 200 SMA, the May low and the 50% fib level.