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DAX falls amid rate uncertainty

• Fed speakers temper rate cut expectations
• ECB path uncertain after a June rate cut
• DAX consolidates above 18

The DAX and its European pairs were inching lower on Tuesday, tracking losses in Asia, after Federal Reserve officials dampened rate cut expectations.

Fed Vice Chair Michael Ball said that rates need to stay high for longer to tame inflation, and policymaker Philip Jefferson also noted that inflation was cooling but not as quickly as he had expected.

Several policymakers are calling for continued caution around loosening monetary policy, dampening investor enthusiasm for rate cuts. Investors had become excited that the Federal Reserve may start to cut rates earlier following last week's cooler-than-expected inflation data.

Declines in the DAX came even though German producer prices fell more than expected in April. Producer prices fell -3.3%, down from -2.9% in March and below the -3.2% expected.

The ECB is expected to cut rates in June; however, there is some uncertainty over the path for interest rates thereafter. ECB's Isabel Schnabel warned that the data does not warrant a July cut.

Looking ahead, there is no high-impacting data in the US session; however, the market will watch plenty of Fed speakers, including New York Fed president John Williams and Fed governor Christopher Waller. Their comments will be scrutinised for clues about the timing and scale of rate cuts.
 

DAX forecast- technical analysis

After reaching a record high of 18928 last week, the DAX has eased back, falling below the rising trendline support and is consolidating above 18630, the April high.

Buyers will look to rise above 18928 to extend gains to 19000 and on towards 19500.

Sellers will need to break below 18625 to extend losses towards 18240, the late April high, and the 50 SMA.

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GBP/USD hovers around 1.27 ahead of Bailey& Fed speakers

• BoE Governor Andrew Bailey is due to speak
• Fed officials are also in focus ahead of tomorrow’s FOMC minutes
• GBP/USD hovers around 1.27

GBP/USD is inching higher and holds above the 1.27 level, a two-month high, as the US dollar struggles for direction and the pound looks towards a speech by Bank of England governor Andrew Bailey ahead of UK inflation data tomorrow.

USD is holding steady as investors assess the timing of possible Fed rate cuts this year. The U.S. economic calendar is quiet this week, but attention is on a slew of Fed speakers.

Several officials on Monday called for ongoing policy caution even after last week's cooler-than-expected CPI data.

The money markets are pricing in 42 basis points worth of Fed cuts this year, which equates to one full 25 basis point reduction and a 68% probability of a second move before the end of the year.

On the other hand, the Bank of England could start cutting rates as soon as June. Investors will listen to Bank of England governor Andrew Bailey's speech for further clues about the likelihood of a June cut.

Previously Andrew Bailey has said that the Bank of England will be led by wage growth and inflation data. CPI figures are due tomorrow and are expected to show that inflation cooled back to 2.1%, down from 3.2%
 

GBP/USD forecast – technical analysis

GBP/USD broke out of its falling channel, rising above the 100 and 200 SMAs. This, combined with the RSI above 50, keeps buyers hopeful of further gains.

Buyers will look to rise meaningfully above 1.27 to bring 1.28 the round number into play. Above here, 1.2890, the 2024 high comes into focus.

On the downside, a fall below 1.27 exposes the 100 SMA and static support (early May high) at 1.2630. A  break below here opens the door to 1.2540 the 200 SMA.

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