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DAX slips on US government shutdown caution and & German retail sales fall

• US government shutdown worries cool sentiment
• German retail sales fall -0.2% MoM vs 0.6% rise expected
• DAX trades in a holding pattern

The DAX is trading modestly lower on Tuesday in line with broader European markets amid a cautious mood over the possibility of a U.S. government shutdown and after German retail sales came in below expectations.

Yesterday, Vice President JD Vance stated that a government shutdown was likely due to stalled budget talks with Democrats. A closure could delay job data due on Friday, a key indicator not only for the health of the US labor market but also for the Federal Reserve when deciding on monetary policy. While this doesn't directly affect Europe, it's a sentiment play creating a cautious mood.

Elsewhere, on the data front, German retail sales fell 0.2% month-over-month after declining 0.5% in July. Expectations had been for a 0.6% rise in sales. The data suggest that the buying mood in Germany cooled significantly over the summer. Concerns over the economic picture are weighing on purchasing confidence.

Looking ahead, attention turns to German inflation data, which is expected to show that the CPI ticked up to 2.3% year-over-year in September, up from 2.2%. ECB president Christine Lagarde is also due to speak. The markets are only pricing in a 35% probability that the ECB will cut rates again. In the middle of next year.
 

DAX forecast – technical analysis

DAX broke below its multi-month rising trendline, finding support at 23,400, the August low. The price has consolidated in a range of 23,800 – 23,400 over the past month. The RSI is neutral. This setup lends itself to a breakout trade. The price trades towards the upper end of the holding pattern.

Buyers will look to break above 23,800 and 24,000, the 50 SMA to bring 24,600 and fresh record highs into play.

Sellers will look to break below 23,400 to create a lower low and bring 23,000 into focus.

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GBP/USD rises as US government shutdown looms

• US  government shutdown worries hurt USD
• GBP gains could be limited by UK fiscal worries
• GBP/USD tests the falling trendline resistance

The GBP USD is edging higher amid a softer U.S. dollar, driven by concerns over the U.S. government shutdown.

The US dollar is under pressure again on Tuesday as investors braced for a possible US government shutdown, a move that would delay the release of key jobs data this week. The data is key for Federal Reserve decision-making and could leave the central bank flying blind on the labour market.

Several policymakers have highlighted weakness in the labour market as the driving force behind a decision to cut rates in the most recent policy meeting.

Traders are currently pricing affords two basis points of Fed easing by the end of this year and 104 basis points by the end of 2026. 25 basis points less than seen earlier this month.

Meanwhile, the pound is benefiting from the weekend's U.S. dollar, but gains could be limited if the market becomes concerned about Labour’s fiscal policy as the Labour Party conference continues.

Markets are currently uneasy regarding the UK's fiscal outlook, and negative headlines could quickly trigger sell-offs in base gilts and sterling.

UK GDP came in line with forecasts at 0.3% QoQ, down from 0.7% in Q1 as the pull forward from Trump’s tariffs faded.
 

GBP/USD forecast – technical analysis

GBP/USD recovered from the 1.3230 low in September, rising off the ascending trendline. The price is testing resistance at 1.3450, the falling trendline, the horizontal resistance, and the 50 SMA.

Buyers need to retake this level to extend gains towards 1.36, the August high, and 1.37.

Failure to rise above the 1.3450 level could result in the price falling to retest support at 1.3330. A break below here creates a lower.
 

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