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DAX treads water ahead of US data & as the German economy stagnates

• German GDP was 0% QoQ
• Fed rate cut expectations are in focus
• DAX struggles below the 200 SMA

The German DAX is trading cautiously following modest gains yesterday, supported by expectations of a December Fed rate cut.

Recent dovish commentary by Fed officials, including Governor Christopher Waller and New York Fed President John Williams, has lifted rate cut expectations for next month to over 80% from below 30% last week.

Meanwhile, investors continue to monitor the progress of ongoing talks surrounding a peace plan for Ukraine. While Trump's original piece agreement for the two countries was more favourable to Russia, this has since changed, raising the likelihood that Russia won't agree to it, pushing peace further into the distance. Aerospace and defence stocks are rebounding as the prospect of peace in Ukraine fades.

On the data front, German GDP stagnated with just 0% growth in Q3, in line with expectations and up from a -0.3% contraction in Q2. On an annual basis, the economy grew by 0.3%.

Weak exports have weighed on the economy in the July to September. The data comes after German IFO business sentiment figures yesterday unexpectedly fell as firms doubted the likelihood of a recovery. The country appears to be in an ongoing state of paralysis with tariffs, political uncertainty, and the stronger EUR hurting the economy.

Looking ahead, attention will turn to a US data drop, which could impact sentiment. US retail sales, consumer confidence, pending home sales, and durable goods orders are due in the US session.
 

DAX forecast – technical analysis

DAX faced rejection at 24,500, falling below the rising trendline and the 200 SMA to support at 22,920 before recovering higher. The RSI remains below 50.

Should buyers extend the recovery above 23,400 and the 200 SMA at 23,500, this would negate the near-term selloff and bring 24000 into focus.

Sellers would need to take out the support zone at 22920 to create a lower low and head towards 22100, the mid-February low.

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USD/JPY slips on yen intervention worries and ahead of US data

• USD falls modestly as December Fed rate cut expectations rise
• JPY gains on intervention worries
• USD/JPY eases back from an almost 10-month high

USD/JPY is falling, although it remains close to its almost 10-month high reached at the end of last week.

The US dollar is only down modestly as investors weigh the chances of the Federal Reserve cutting interest rates next month following dovish comments from policymakers.

Fed governor Christopher Waller said that the labour market is soft enough to warrant another rate cut in December, and any other action beyond that depends on upcoming data delayed by the government shutdown. His comments follow New York Fed President John Williams, who on Friday adopted a more dovish tone, shifting rate-cut expectations from 30% to over 80%.

The market has been very focused on Fed speakers; however, this focus may weaken slightly as U.S. data starts to flow through again. U.S. retail sales, pending home sales, consumer confidence, and durable goods orders are all due today, and could provide insight into how the U.S. Economy is holding up.

Meanwhile, the yen is strengthening modestly as traders remain on high alert for government intervention. Japanese currency has weakened sharply since fiscal dove Takaichi took over as Japan's Prime Minister. Japanese bond yields have risen, hitting record highs at longer maturities, highlighting concerns over Japan's fiscal outlook.

Traders have ¥158 to ¥162 per dollar as a range where Japanese officials may step in, though a move may not be highly effective. It could slow the USD/JPY ascent rather than push it off course.

USD/JPY forecast – technical analysis

After breaking out of the rising channel, USD/JPY ran into resistance at 157.90, a nearly 10-month high. The price has since eased lower, bringing the RSI out of overbought territory.

The uptrend remains in tact, with dips considered buying opportunities. Buyers will look to extend gains above 157.90 towards 158.90, the 2024 high and on to 160.0.

Support is seen at 155.00 and a break below 153.20 is needed to create a lower low.
 

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