DAX, FTSE 100 Forecast: Two trades to watch

DAX at record highs as it remains well positioned to benefit from a rotation into cyclicals

European stocks have opened modestly higher on Monday after the DAX closed at another record high last week, with investors turning their attention to a busy economic calendar and the start of earnings season.

The DAX is benefiting from a rotation out of US tech into more attractively valued European cyclical and industrials. This has also been evident with the move out of the US Nasdaq into the Dow Jones which outperformed in June and in the first few sessions of July.

Investors are questioning whether the AI-driven rally of the past 2 years can be sustained , particularly as investors become increasingly focused on whether record levels of capital expenditure on AI infrastructure will translate into earnings growth quickly enough to justify current valuations.

the DAX is well positioned in this current environment, given its heavy weighting towards industrials, manufacturers, and financials, which all tend to benefit if global growth stabilises and borrowing costs remain contained. Such companies are also trading at considerably lower valuations compared to U.S. tech stocks, making them an attractive area for those looking for better value.

On the economic calendar, German factory orders surprised to the upside, rising 1.9% month-on-month in May after a 3.2% decline in April, comfortably beating expectations for a 1.2% increase. The data suggest that manufacturing demand may be beginning to stabilise after a prolonged period of weakness.

Attention will now turn to Eurozone producer prices, which are expected to rise 5.7% year-on-year in May, up from 4.9% previously. However, with oil prices having fallen sharply back towards pre-conflict levels since then, the data may have limited market impact as investors focus on the improving inflation outlook.

Eurozone retail sales are also due and are expected to show a modest 0.2% monthly increase after April's 0.4% decline, providing another gauge of consumer demand across the bloc.

Recent dovish comments from ECB President Christine Lagarde, combined with falling energy prices, have led markets to scale back expectations for further ECB rate hikes this year, providing additional support for European equities.

Attention is also beginning to shift towards earnings season, which gets underway this week in the U.S. with results from PepsiCo and Delta Air Lines. Investors will be watching closely for signs that corporate earnings can justify elevated equity valuations.

DAX Forecast – Technical Analysis

The DAX has extended its recovery from the 21,860 low recorded earlier this year, rallying to a fresh record high near 25,920.

The index continues to trade comfortably above its 50-day and 200-day SMAs as well as its rising trendline, while the RSI remains positive without entering overbought territory, suggesting momentum remains supportive.

A break above 25,920 would expose the psychological 26,000 level before bringing 26,500 into focus.

Initial support lies at 25,500, the January and May highs. Below there, support is seen around 25,200 and the psychological 25,000 level. A break beneath those levels would expose the rising trendline and the 50-day SMA around 24,700.

FTSE 100 rises with M&A activity in focus

The FTSE 100 has opened modestly higher broadly tracking gains across European markets after the index recorded a second consecutive weekly advance and closed Friday at its highest level since early March.

The FTSE 250 is outperforming after EasyJet accepted a takeover offer from Castlelake, ending months of speculation surrounding the airline.

The bid, the fifth made by the U.S. investment firm, follows a sharp decline in EasyJet's share price earlier this year as higher fuel costs during the Middle East conflict and softer travel demand weighed on sentiment. The weakness left the airline increasingly vulnerable to takeover interest.

Elsewhere, ITV has agreed to sell its media and entertainment business to Sky for £1.6 billion. The deal would create a larger UK-focused streaming and media platform capable of competing more effectively with global rivals such as Netflix, YouTube and Prime Video.

For Sky owner Comcast, the acquisition would significantly expand its audience reach while strengthening its position in the UK advertising market at a time when traditional broadcasters continue to face structural challenges.

On the macro front, attention will turn to UK construction PMI data, which are expected to improve modestly to 40.0 in June from 38.2 in May. Although the index would remain well below the 50 level that separates expansion from contraction, any improvement would suggest the pace of contraction is beginning to ease.

FTSE Forecast – Technical Analysis

The FTSE 100 has broken above its symmetrical triangle pattern, extending gains to a three-month high around 10,700.

Momentum remains constructive, with the RSI holding above 50.

A break above 10,700 would expose the record high near 10,950.

Support is seen initially around 10,560, the May high. Below there, the 50-day SMA at 10,400 comes into view. A break below 10,170 would create a lower low and expose the 200-day SMA around 10,100, where sellers could begin to regain control.