Two trades to watch: DAX, GBP/USD

DAX rises as German coalition government formed. GBP/USD looks to Bailey for a boost.

Germany

DAX rises as German coalition government is formed

The DAX is heading higher after the formation of the government and despite more dismal data from Germany.

After two months of negotiations the German ruling coalition has been formed. The social democrats, the Green party and the Free Democrats agreed a coalition and Olaf Scholz of the Social Democrats will replace Angela Merkel. The first task will be to attempt to bring the latest COVID wave under control.

Q3 GDP QoQ was revised lower to 1.7%, down from 1.8% previously estimated. German GFK Consumer sentiment also deteriorated further dropping to -1.6 in December, down from 1 in November and worse than the 0.5% forecast.

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Where next for the DAX?

The DAX has rebounded off yesterday’s monthly low of 15730 and is pushing higher. The price has retaken the week old falling trendline resistance, which combined with the bullish crossover which appears to be forming on the MACD is keeping buyers hopeful of further upside.

Buyers will look to break above 16120 the 50 sma before targeting 16285 and freah all time highs.

Meanwhile failure to hold above the falling trendline could see the price test the 200 sma at 15800 and the November low of 15738.

DAX chart

GBP/USD looks to Bailey

Yesterday, GBP/USD fell to a 2021 low as the US Dollar strengthened after a slew of data. US PCE inflation jumped to a 30 year high, jobless claims fell to the lowest level since 1969 and consumer spending rose by more than expected to 1.3% in October.

The Fed minutes then revealed that some policy makers support tapering bond purchases at a faster pace, should inflation remain elevated, which would mean interest rates could start to rise earlier.

The pound is inching higher on upbeat Brexit headlines after the UK government says that it won’t trigger Article 16 unless talks collapse. Attention will now turn to BoE Governor Andrew Bailey who is due to speak. Any hawkish comments could lift sterling higher.

Where next for GBP/USD?

GBP/USD is rebounding from yesterday’s 2021 low. However the rebound appears to be running into resistance at the week old falling trendline resistance. The failure to move above the trendline, plus the RSI firmly in negative territory suggests there could be more downside to come.

Sellers will be looking for a move below 1.3319 ahead of 1.33 round number.

Meanwhile buyers will be looking to retake the falling trendline at 1.3350, today’s high. It would take a move over 1.3390 yesterday’s high to negate the near term down trend and expose the 50 sma at 1.3425.

 

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