Oil, DAX forecast: Two trades to watch

Oil rises amid escalating Middle East hostilities & as OPEC+ keeps output steady

Oil prices are rising on Monday, extending gains from the previous week, which saw WTI jump almost 10%.

Prices are rising as hostilities in the Middle East ramp up. Over the weekend, tanker strikes between the U.S. and Iran on vessels in and around the Strait of Hormuz heightened fears of a prolonged disruption to crude supply, lifting the risk premium.

The fighting in the Middle East is in its seventh month, and last week's exchanges were the heaviest since July. Furthermore, Washington has said that it won't negotiate until Iran stops attacking ships, which means that the chance of a near-term de-escalation has faded.

Shipping data showed that two vessels crossed the Strait of Hormuz on Saturday and six on Sunday, whilst the 10-day average is around 10 ships a day. This marks the lowest level since May and is well below the recent pace of around 15 ships a day.

Tehran has also said that it will announce a restricted zone outside the Strait in the coming days. Fewer ships and a smaller shipping corridor are keeping oil prices supported.

OPEC+ met on Sunday and left October production unchanged, keeping oil production steady after six months of output increases, as the group shifts its focus to new production quotas for 2027.

Data last week showed that crude oil inventories fell by 4.5 million barrels, the first draw in five weeks and larger than expectations. This, combined with refineries running at 98% capacity, a level the industry has not seen since 2018, is providing a floor for oil prices.

This week's EIA inventory data will remain in focus to see whether this trend continues.

Oil forecast – technical analysis

Oil has broken out of its symmetrical triangle pattern but has so far failed to break above $93, with the July high once again capping gains. The RSI supports further upside while remaining out of overbought territory, keeping the near-term outlook constructive.

Buyers will need to break above $93, the July high, and then $95, the 38.2% Fibonacci retracement of the $55-$120 move. A move above $95 would turn attention towards the psychological $100-a-barrel level, followed by $104, the 23.6% Fibonacci retracement.

On the downside, immediate support is seen at $88, the 50% Fibonacci retracement, followed by horizontal support. Below here, attention turns to the 50 EMA around $85, ahead of $80, where the 200 EMA and 61.8% Fibonacci retracement converge. A break below this zone could see $75, the August low, come into focus.

DAX cautious after AfD election victory and ahead of ECB rate decision

The DAX has opened modestly lower on Monday, as the reaction from the German elections over the weekend has so far been limited. The market is also cautious ahead of Thursday's ECB rate decision and Friday's U.S. inflation data.

Over the weekend, the Alternative for Germany, a far-right party, won the election in the state of Eastern Germany with an impressive 44.5% share of the vote. Meanwhile, the Christian Democrats fell from 37.1% just five years ago to 18.5%.

As a result, the party won 39 of the 83 seats in parliament, short of the 42 required to have an absolute majority, meaning that it would need to form a coalition, likely with the far left.

The AfD's surge in popularity has come as many Germans are concerned about the country's direction amid high levels of immigration and as economic growth has slowed.

This was evident last week after Volkswagen announced plans to lay off 50,000 jobs owing to Chinese competition and U.S. tariffs, as German automakers struggle to compete. Political events could have an impact on German stocks if there are further changes to policy.

The mood is also cautious ahead of Thursday's ECB rate decision, where the central bank is expected to increase interest rates by 25 basis points, taking the deposit rate to 2.5%.

The ECB will be hiking rates as inflation remains elevated and moves further from the central bank's 2% target, as oil prices remain high and energy prices surge.

A hawkish-sounding ECB could limit further upside in the DAX.

Finally, U.S. CPI data will also drive sentiment this week. The numbers on Friday, after U.S. nonfarm payrolls, showed the U.S. economy added 162,000 jobs, adding to expectations that the Fed could hike rates as soon as next week.

DAX forecast – technical analysis

Having run into resistance at a record high of 26,610, the price has eased lower, finding support on the 50 EMA and maintaining the uptrend dating back to March. Momentum is showing signs of slowing, with the RSI tipping below 50.

Should momentum pick up, buyers will look to extend gains above 26,610 to create a higher high, bringing 27,000 into focus.

Immediate support is seen around the 26,800 zone, where horizontal support, the 50 EMA and the rising trend line converge. Below here, attention will turn to 25,500, and below here sellers could look towards 25,000, the round number. A break below 24,800, the 200 EMA, could see sellers gain traction.