Two trades to watch: DAX, GBP/USD

DAX falls after industrial production tumbles. GBP/USD falls to a fresh 23-month low ahead of US NFP.

Downtrend 2

DAX falls after industrial production tumbles

European stocks have opened in the red, extending losses from the previous session after a bloodbath on Wall Street which saw the Nasdaq close 5% lower.

Inflation, stagflation, and recession fears weigh on the market mood heading towards the weekend. The DAX is set to lose 1.4% across the week, its fifth straight week of losses.

German industrial production fell -3.9% MoM in March, down from 0.2% in February and well short of the -1% fall expected. The disappointing data comes hot on the heels of German factory orders, which also experience a deep decline the March. The data reflects the Russian war’s impact on the German economy and, more broadly, the Eurozone economy.

There is no more data due for Germany today. European indices will be influenced by sentiment and the US NFP release.

Where next for the DAX?

After rising to 14320 yesterday, the DAX ran into resistance, rebounding lower below the 50 SMA, which, combined with the RSI heading into bearish territory, keeps sellers hopeful of further downside.

Sellers need to break below 13500, the April low to continue the bearish trend towards 13300, the March 14 low and 13000 round number.

Buyers could look for a move over the 50 sma at 14100 to open the door to 14300, the falling trend line resistance, and yesterday’s high. A move over here could create a higher high and propel the price towards 14600, the April high.

dax chart

GBP/USD falls to a fresh 23-month low ahead of US NFP

Warning bells from the BoE over double-digit inflation and a contraction in 2023 sent the pound spiraling lower to a level last seen in January 2020. The BoE gave the gloomiest outlook compared to any major central bank so far, which would explain why the pound is set to be the weakest performer of the major currencies across the week.

Meanwhile, the USD found its mojo on Thursday after falling post-Fed. Attention is now turning to the US non-farm payroll, which is expected to show that the US labour market remains tight. Looking ahead, the Fed tightening monetary policy will become a headwind for the labor market, but we are not there yet.

309k jobs are expected to be added, and the unemployment rate is expected to hold steady at 3.6%. Wages are expected to rise at 5.6%. There is still another jobs report ahead of the June Fed meeting; the market’s reaction to today’s numbers could be modest.

Where next for GBP/USD?

GBP/USD broke below the previous 23 month low at 1.2410 and continues falling. The pair sits at 1.23 at the time of writing and is deeply in oversold territory so there could be some consolidation at these levels. The extend the bearish trend sellers will look towards 1.2250 the June ’20 low before bringing 1.20 the psychological level into focus.

On the flip side, any recovery will need to rise over 1.2410 and then 1.2635 the May high in order to expose the 50 sma, horizontal resistance and psychological level of 1.30, which would take an impressive amount of momentum to reach from current levels.

GBPUSD chart

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