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DAX falls to a 5-month low as risk sentiment falters

The dark says falling for a fourth straight session on Tuesday, dropping to its lowest level since June, in line with its European and global peers.

Risk sentiment is deteriorating amid concerns about lofty valuations of AI-related stocks ahead of Navidi's quarterly results and uncertainty over the Federal Reserve's next move.

The prolonged US government shutdown means the Fed is without key macroeconomic data to inform its decisions. While the September 9 farm payroll report will be released on Thursday, the October inflation data and October nonfarm payrolls may never be released.

Recent Fed members have sounded cautious about cutting again without the necessary data to support the decision.

Text doc valuation civil sparked worries of an overvalued sector. Sentiment has been fragile globally ahead of Nvidia's earnings, due after the close tomorrow. In Europe, AI equipment makers such as Siemens Energy, which is trading 3% lower, and Schneider Electric are also down 2%

The eurozone economic calendar is quiet today. Attention will be on the US ADP weekly payrolls, which last week showed an average of 11,250 jobs lost over the last 4 weeks in October.
 

DAX forecast – technical analysis

The DAX ran into resistance at 24.500 last week and rebounded lower, breaking below the rising trendline support and the 200 SMA, falling to a low of 23,140. The long lower wick indicates weak selling pressure at lower levels.

Should buyers recover above the 23,400 support and the 200 SMA, the rising trendline resistance at 23,700 comes into focus. It would take a rise above here to negate the near-term selloff and expose the 50 SMA at 24,000.

Sellers supported by the RSI below 50 will look to extend losses towards the June low at 23,000. A break below here could spark a deeper selloff towards 22,200.

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USD/JPY rises to a 9.5-month high on Japan fiscal worries

USD/JPY rose to a fresh 9.5-month high before easing modestly lower as investors fret over Japan's fiscal stance and await U.S. data for signals on the Federal Reserve's next move.

While global stocks are dropping with a heavy sell-off in tech-driven markets, the reaction in forex has been relatively muted. The US dollar trades flat against its major peers, and the yen is failing to pick up any safe-haven flows.

Investors will be looking to U.S. economic data after the record-long government shutdown ended last week. The September jobs report is expected tomorrow, although the data will be very backward-looking. October jobs and inflation data may never be released.

Fed speakers have adopted a more hawkish tone, prompting money markets to pull back the chances of a 25 basis point rate cut to around 50% from 60% a week ago.

While the Bank of Japan governor has signalled the possibility of an interest rate hike as soon as December, the Prime Minister Sanae Takaichi has expressed displeasure with such a move and urged the central bank to work closely with government efforts to reflate the economy. Japan may be considering a stimulus programme of around ¥23 trillion, which would exceed the ¥17 trillion package previously reported in the Nikkei newspaper.

Takaichi’s Abe-economics style policies could keep the pressure on the Japanese currency going forward. Expansionary fiscal spending is likely to swell Japan's debt and could raise the premium investors demand to hold the debt.

Meanwhile, there is a growing risk of Japanese forex intervention, which could delay the pair's ascent. Although it's worth noting that recent verbal warnings do not point to imminent action. Today, Finance Minister Katayama raised concerns again over foreign exchange movements.
 

USD/JPY forecast – technical analysis

USD/JPY is attempting to break out of the multi-month rising trendline as the pair trades above 155, an 8-month high. The RSI supports further upside as long as it remains out of oversold territory.

 A meaningful rise above 155 opens the door towards 156.75, the January 23 high. Above here, 158.90, the 2025 high comes into focus.

On the downside, support is seen at the 153.25 region, the October 9 high, and the November 7 low. A break below here opens the door to 151.
 

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