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DAX rises amid an improved market mood

• A more dovish Fed Chair Powell boosts risk sentiment
• Eurozone PMI & PPI data due
• DAX guided higher between the 50 & 100 SMA

Stocks in Europe are heading higher, in a bright start, boosted by another strong close on Wall Street. Risk appetite has been lifted by Fed Chair Jerome Powell acknowledging progress on cooling inflation, which has been translated to rate cuts are coming by the market.

Despite today’s positive start, investors’ apprehension could limit gains ahead of Sunday's second round of the French elections.

The French election could be a source of volatility as the market waits to see whether Marine Le Pen’s National Rally secures an absolute majority—the worst-case scenario for the markets amid fears of unrestrained fiscal expansion and higher debt levels. In France, the best-case scenario would be a hung Parliament, which, given the first round of voting, is also our base-case scenario.

On the data front, investors will be digesting PMI data from Germany and the eurozone as well as PPI, which is expected to fall by a smaller margin in May.

The data comes after yesterday's inflation figures showed CPI eased to 2.5% YoY, down from 2.6% and resuming a downward trend after accelerating in the previous month. However, service sector inflation remains sticky, at over double the ECB's 2% target.

ECB Christine president Christine Lagarde spoke yesterday, saying that the ECB needs more evidence of cooling inflation before cutting rates further. The central bank reduced rates by 25 basis points at the start of June and is not expected to move on rates in the July meeting. However, data permitting the ECB could cut again in September. A lower interest rate environment is more beneficial for companies and households alike.

Looking ahead to the US session, a US data drop could influence sentiment. ADP payrolls, jobless claims, and ISM services PMI, as well as the FOMC meeting minutes, are to be released.
 

DAX forecast - technical analysis

After falling to a low of 17950, the DAX has been grinding higher, guided by the gently sloping 50 & 100 SMAs.

Buyers will need to rise above 18400, the 50 SMA, to break out above the channel, bringing 18650, the March high, into focus, ahead of 18923, the SATH.

Sellers will need to break below the 1000 SMA to break out of the channel at 18135, bringing 18000 into play. A break below the round number opens the door to 17800, the May low.

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GBP/USD rises after a dovish Powell & ahead of the UK election

• US data drop in focus after a dovish Powell
• The UK election takes place tomorrow, with a Labour win expected
• GBP/USD rises towards 1.27

The pound to the U.S. dollar is rising, snapping a four-day losing streak on the eve of the UK general election and as investors look ahead to more cues regarding US interest rates.

The USD is falling after Fed Chair Powell adopted a slightly more dovish tone, acknowledging that progress had been made in cooling inflation but reiterating that policymakers want to have more confidence before cutting rates.

Attention now turns to a packed US economic calendar, with ADP payrolls and continuous jobless claims in focus after yesterday's stronger-than-expected job openings data, which pointed to ongoing resilience in the US labour market.

ADP payrolls are expected to rise modestly higher to 156k, and continuous jobless claims rose to a three-year high in the previous week. US ISM services PMI data will also be in focus, providing timely information on economic growth in the second quarter.

Finally, FOMC minutes are due later and could shed more light on when policymakers are considering cutting rates. The meeting minutes come from a meeting where the Fed left rates unchanged and projected just one rate cut this year. However, liquidity could be low ahead of the Independence Day holiday.

Meanwhile, the pound is rising ahead of tomorrow's general election, where the Labour Party is expected to win by a comfortable majority.

A Labour win is unlikely to dramatically change the UK's fiscal position. However, the prospect of stability could boost the pound. That said, gains could be short-lived if the Bank of England decides to cut interest rates in August.
 

GBP/USD forecast – technical analysis

After falling out of the rising channel, GBP/USD is consolidating, in a 100 pip range, caught between 1.26 and 1.27.

It trades at the top end of the range, with a breakout above 1.27 opening the door to 1.28 round number and 1.2830 the 2024 high.

Sellers would need to break out below 1.26 to expose the 200 SMA at 1.2560. Sellers could gain momentum below here.

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