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DAX, USD/JPY Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
August 27, 2024 9:32 AM

DAX muted after GDP confirms contraction & consumer confidence falls

  • German GDP contracts -0.1% QoQ in Q2
  • German consumer confidence falls -22
  • DAX inches higher towards 18.8k

The DAX, along with European stocks, are edging modestly higher in quiet trade on Tuesday.

German GDP data confirmed that the eurozone’s largest economy shrank by 0.1% in the second quarter of 2024, confirming preliminary data. The data comes after the German IFO business climate deteriorated for a fourth straight month in August, falling to 86.6 warnings of a worsening economic crisis. Meanwhile, consumer confidence is set to tumble heading into September amid rising concerns over unemployment. Rising unemployment, job cuts and insolvencies hurt sentiment.

The deteriorating data in Germany could prompt the ECB to move ahead with another rate cut in September. This market is pricing in a 90% certainty of an ECB reduction next month which could keep stocks supported.

The recent rally in global equities has come amid expectations of a lower interest rate environment. The Federal Reserve is expected to start to cut rates next month.

However, the market mood remains fragile due to the deteriorating geopolitical environment. Canada's implementation of trade tariffs on China EVs has raised concerns of a trade war between Beijing and the West. Meanwhile, the unstable situation in the Middle East is also keeping investors on tenterhooks.

DAX forecast – technical analysis

The DAX has extended its recovery from 17k, the August low, rising above 18k as it heads towards 18.8k, the July high, supported by the RSI above 50.

Support can be seen at 18.3k the 100 SMA, with a break below here opening the door to 18k. A move below 18k exposes the 200 SMA at 17.7k.

USD/JPY rises after a weaker Japanese inflation measure

  • USD hovers around 13-month low
  • Japanese corporate service price index falls
  • USD/JPY remains below 145.00

USD/JPY is inching higher for a second straight day but remains below 145.

The U.S. dollar is holding steady at around a 13-month low against its major peers, weighed down by persistent expectations of US interest rate cuts.  Federal Reserve chair Jerome Powell's speech at Jackson Hole on Friday and comments from San Francisco Fed President Mary Daly support the view that the Fed is ready to pivot.

Markets are pricing in with 100% certainty the Fed will cut rates in September, although investors remain split over the size of the possible rate cut. The CME Fedwatch tool shows the market is pricing in a 75% probability of a 25 basis point reduction and a 25% chance of a 50 basis point cut.

The US economic calendar is relatively quiet today, with just home sales and consumer confidence data. Expectations are for consumer confidence to tick higher following the rise in Michigan consumer sentiment.

Meanwhile, the yen is edging lower after the Japanese corporate services price index, which measures producer inflation, came in slightly weaker than expected at 2.6%, down from 3.1%.

The data raises some questions about how much inflation could rise this year and how much headroom the Bank of Japan has to continue raising interest rates. Toyko inflation on Friday will also be in focus.

USD/JPY forecast - technical analysis

USD/JPY ran into resistance at 149.40, the 38.2% fib level (of the 161.90 high and 141.7o low), and the rising trendline resistance.

The price rebounded lower, falling below 145, where the price is consolidating, bringing the RSI out of oversold territory.

Sellers will look to extend losses, taking out 143.50, the weekly low, ahead of 141.70.

Buyers will need to rise above 145 and 146.45, the 23.6% fib level ahead of 149.40. A rise above here exposes the 200 SMA at 151.50.

 

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