DAX, GBP/USD Forecast: Two trades to watch

DAX falls amid global tech rout

European stocks are falling sharply as the technology sell-off in the U.S. and Asia spreads into Europe.

The Nasdaq 100 closed 1.3% lower overnight, weighed down by a 16% drop in SpaceX after a bond sale unnerved investors and a sharp decline in mega-cap stocks, with Alphabet falling 5%, Microsoft down 3.2%, and Amazon dropping 4%.

The weakness spread into Asia, where the Kospi fell 10%, while chip stocks tumbled amid concerns that the AI trade has become overstretched.

In Europe, the DAX is trading more than 1% lower as the global retreat in technology stocks weighs on sentiment. Chipmaker Infineon is among the laggards, falling 3.4%.

The DAX is particularly vulnerable to any slowdown in global growth given its large exposure to exporters and industrial firms. Weak domestic data and a softer global tech backdrop are creating a difficult combination for the index.

On the data front, attention is on German PMI figures, which came in weaker than expected. Services PMI contracted at a faster pace, falling to 46.8 from 48.1 in May and below expectations of 48.7.

Manufacturing PMI also disappointed, slipping to 48.0 from 48.8 and missing forecasts for a rise to 49.9, suggesting the industrial sector is yet to see a meaningful improvement in demand.

The composite PMI fell to 50, the level that separates expansion from contraction. The data suggest Germany is struggling to generate meaningful growth despite lower energy prices and ECB support, raising questions over whether earnings expectations for European equities remain too optimistic.

DAX Forecast – Technical Analysis

The DAX trades above its rising trendline and its 50 and 200 SMAs, keeping the longer-term uptrend intact.

However, the recent recovery from the 23,950 low ran into resistance at 25,150, forming a lower high. The index is now testing support at 24,800, the April 17 swing high and October high.

Sellers would need to take out this level to expose the 50 SMA around 24,500 and the 200 SMA at 24,250. Below here, attention turns to the 23,950 support zone.

Should support hold, buyers could look for a move above 25,200 to create a higher high and bring 25,500 into focus ahead of fresh record highs.

GBP/USD below 1.3250 on UK politics, PMIs up next

The pound remains weak below 1.3250 after Sir Keir Starmer announced his resignation as Prime Minister and leader of the Labour Party yesterday.

Andy Burnham is the frontrunner to replace him after Starmer laid out a timetable for his departure and several potential rivals backed a swift transition.

If no serious challengers emerge, Burnham could be installed as Prime Minister as soon as July 17.

The market reaction to Starmer's resignation has been relatively muted, suggesting investors see fiscal policy and economic fundamentals as more important than the change in leadership itself. Support for Burnham from senior Labour figures has also reduced the risk of a prolonged leadership contest, helping gilt yields ease back from yesterday's highs near 4.86%.

Attention will now turn to Burnham's economic agenda and, crucially, who he appoints as Chancellor. For markets, the key question is whether the new administration prioritises fiscal discipline or attempts to boost growth through higher spending.

While Burnham has indicated he would stick to Labour's fiscal rules, investors will want further reassurance given the UK's stretched public finances.

Public sector borrowing remains above expectations and debt-to-GDP is above 95%, meaning gilt investors are likely to scrutinise any spending commitments closely. The experience of 2022 showed how quickly UK assets can come under pressure if fiscal credibility is questioned.

Attention is also on PMI data today. Manufacturing PMI is expected to ease slightly to 53.6 from 53.9, while services PMI is forecast to improve to 50.0 from 49.3.

Meanwhile, the U.S. dollar is rising against its major peers as investors continue to favour the relative strength of the U.S. economy. Last week's hawkish Fed meeting reinforced the view that U.S. interest rates could remain higher for longer than those in Europe or the UK.

U.S. PMI data is also due today, while Core PCE inflation is released tomorrow and could provide further clues over the outlook for U.S. interest rates.

For now, sterling appears caught between domestic political uncertainty and a widening interest-rate gap with the United States. Unless UK data improve materially or markets receive reassurance on fiscal policy, rallies in GBP/USD may continue to attract sellers.

GBP/USD Forecast – Technical Analysis

GBP/USD broke below its symmetrical triangle pattern, falling to a low of 1.3160 before recovering slightly back above 1.3200.

The breakdown from the triangle, combined with the pair trading below its 50 and 200 SMAs and an RSI below 50, keeps sellers hopeful of further downside.

Sellers would need to break below the 1.3200/1.3160 support zone to create a lower low and bring 1.3000 into focus.

Any recovery would need to rise above 1.3250 to bring 1.3330 into play ahead of the 200 SMA around 1.3400.