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DAX falls amid global tech rout, weaker German business confidence

• Nasdaq fell almost 4% after underwhelming mega-cap earnings
• DAX IFO business climate fell to 87 from 88.6
• DAX breaks below 100 SMA support

The DAX and its European peers are tumbling lower on Thursday, pulled down by disappointing corporate earnings and following a steep sell-off on Wall Street.

 Disappointing earnings from Tesla and Alphabet triggered a 3.6% selloff in the Nasdaq, marking its worst day since October 2022 and sparking a global tech route.

Weaker-than-expected German business sentiment has added to the downbeat mood. The German Ifo business sentiment climate unexpectedly fell to 87 in July, down from 88.6 in June and defying expectations of a rise to 88.9. This reaffirms softer business conditions and the outlook for the German economy.

The data comes after data from the euro area this week has been poor, to say the least. Yesterday's PMI data showed that the eurozone economy stalled, with the composite PMI at 50.1. Meanwhile, alarm bells sounded over the German economy, which fell back into contraction territory, dragged down by a steep decline in the manufacturing PMI.

Looking ahead, attention will turn to Q2 US GDP figures later today, which could provide further clues about when the Fed might start to cut rates.

DAX  forecast – technical analysis

The DAX has broken below the 100 SMA dynamic support, which has been guiding the price higher since mid-June. The break below the 100 SMA combined with the RSI below 50 keeps sellers hopeful of further losses.

Support can be seen around the 18025 – 17950 zone, the July and June lows. A break below here opens the door to 17,800, the May low.

Any recovery would need to retake 18,300 of the 100 SMA. Above here 18780, the June and July high comes into focus ahead of 18990 and fresh all-time highs.

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USD/JPY drops to a 12-week low as the carry trade unwinds & on safe-haven flows

• BoJ could raise interest rates next week
• JPY benefits from safe-haven flows
• USD/JPY falls towards 152.00

USD/JPY has fallen sharply, extending losses from yesterday as the pair drops to a 12-week low. The pair is being dragged lower by various factors, including the unwinding of the carry trades and on safe-haven flows as risk appetite sours.

A selloff in US equities and a global tech route has boosted safe-haven demand, and the Japanese yen is the asset of choice, outperforming gold, which has fallen below 2400.

Attention is turning to the Bank of Japan's July meeting, where the market expects a 10 basis point rate hike and could potentially unveil a plan to halve bond purchases in the coming year, signaling it's ready to unwind its massive monetary stimulus.

This is happening while the Federal Reserve is widely expected to start cutting interest rates in September.

Attention today will be on US Q2 GDP data, which includes the core PCE figures for the quarter. GDP is expected to grow 2% annualized, up from 1.4% in the first quarter, but this is still below trend and down significantly from 4.9% in Q3 2023.

The data comes after U.S. business activity climbed to a 27-month high in July, but firms have had difficulty sustaining higher prices.

Core PCE data, the Fed's preferred gauge for inflation, is due tomorrow.
 

USD/JPY forecast - technical analysis

USD/JPY ran into resistance at 161.95 and has fallen sharply lower, taking out several key support levels as it heads towards 151.86, the May low. A break below here exposes the 200 SMA at 151.60 before bringing 150.75, the February high, into play.

The RSI has moved into oversold territory, so there could be consolidation or a higher move. Should buyers defend 151.86, a recovery would need to retake 155.00 to negate the near-term downtrend.

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