DAX, USD/JPY Forecast: Two trades to watch

DAX falls in choppy trade, inflation cools in September

• German inflation cools to 4.5% YoY in September
• IMF downwardly revise German GDP forecast
• DAX failed at 20 sma resistance

The DAX, along with its European peers, is set to open lower on Wednesday, after posting gains on Tuesday, as choppy trading continues.

The DAX rose almost 2% yesterday as European bourses experienced their strongest daily performance in 11 months, helped higher by China stimulus hopes which boosted automobile makers such as BMW, Porsche, and Mercedes-Benz.

Developments surrounding the conflict in the Middle East remain a key focus, and attention is also turning towards the minutes from the Federal Reserve meeting as well as U S PPI data.

Recent Fed speakers have adopted a slightly more dovish stance raising doubts over whether the Fed will hike interest rates again this year. The dovish shift by the Fed has been welcomed, with futures pricing suggesting that traders now see a 30% chance of another rate hike this year. U.S. Treasury yields were also lower, helping risk appetite.

On the data front, German inflation eased to 4.5% YoY in September down from 6.1% in August. The data supports the view that the ECB may not raise interest rates further but will keep them at the 4% level for an extended period.

Concerns over the health of the German economy remain acute, with the IMF downwardly revising growth for the eurozone's largest economy this year, with a contraction of 0.5% now expected.

Dax forecast – technical analysis

DAX extended its rebound from 14945, the October low, and has run into resistance at the 20 sma around 15400. The RSI is neutral, giving away few clues.

Buyers will need to rise above the 20 sma and 15480 the October high, negating the near-term downtrend, to extend gains towards the 200 sma at 15645.

Should sellers successfully defend the 20 sma, 15130, the September low comes into focus, ahead of support at 14945, the October low.

 

USD/JPY rises ahead of PPI, Fed minutes

• USD rises despite dovish Fed commentary
• US PPI, FOMC minutes due
• USD/JPY is supported by the 20sma

USD/JPY is heading higher for a second straight session despite ongoing concerns over the conflict in the Middle East and dovish comments from Federal Reserve officials. and look ahead to the policy meeting minutes due later today.

The USD is advancing despite several Federal Reserve officials signaling in recent sessions that the US central bank may not need to tighten monetary policy much further.

Atlanta Fed president Rafael Bostic said yesterday that the central bank didn't need to raise borrowing costs, and Minneapolis Fed president Neel Kashkari echoed his remarks later in the day.

The Fed appears to be shifting away from additional hikes, which has also helped U.S. Treasury yields ease, which could mean that gains in the US dollar are capped.

Attention is now firmly on the minutes of the September Fed meeting for further clues on the interest rate outlook for the US.

The minutes come after the release of PPI data, which is expected to show that wholesale inflation held steady in September at 1.6% and rose 0.4% MoM after increasing 0.7% in August. Stronger than expected, PPI could reignite hawkish fed bets and send the US dollar higher.

 

USD/JPY forecast – technical analysis

After running into resistance above 150.00, USD/JPY has eased low and has found support on the 20 sma around 148.65. Sellers will need to break down this support to open the door to 147.90, the early September high, and 147.30, the October low.

Should buyers defend the 20 sma, a rise towards 149.50, the weekly high, and 150.00, the psychological level could be on the cards.