DAX, GBP/USD Forecast: Two trades to watch

DAX falls in risk-off trade after Hamas attack on Israel, German industrial output falls

Risk-off trade hurts demand for equities, oil prices rise
German industrial production fall -0.2% MoM
DAX heads back towards 14945

The DAX is heading lower, extending losses from the previous week in risk-off trade amid rising geopolitical tensions in the Middle East. An unprecedented attack by the Palestinian group Hamas on Israel over the weekend has spooked the financial markets.

The Israeli-Palestinian conflict escalated over the weekend and comes as the Ukrainian war is ongoing, rattling market nerves and sending oil prices shooting 4% higher. Germany, the eurozone's largest economy has a high exposure to energy costs so a sustained rise in oil prices is considered a negative for the economy.

On the data front, German industrial production fell by more than expected in August dropping 0.2% MoM, this was worse than the 0.1% decline forecast but an improvement on the revised 0.6% fall in the previous month. The data shows that the sector remains under serious pressure.

The data comes after German exports also fell more than expected last week but factory orders rebounded.

Looking ahead attention will remain on developments in Israel as well as on the ECB Vice President Luis de Guindos and ECB board member Andrea Enria, who are due to speak in today's session.

DAX forecast – technical analysis

After running into resistance at 15300, the DAX is heading lower towards 14945, last week’s low. Sellers could be encouraged by a death cross forming as the 50 sma is set to cross below the 200 sma, and by the RSI below 50.

Sellers need to break below 14945 to extend the bearish trend towards 14800, the late March low, and 14450, the 2023 low.

Any recovery must rise above 15300, Friday’s high, and 15480, last week’s high to expose the 200 sma at 15625.

GBP/USD falls on safe-haven USD strength, Fed speakers are due

Risk-off trade boost USD hurts demand for GBP
USD looks to Fed speakers
GBP/USD heads towards 1.21

GBP/USD is falling after the Hamas attack, and Israel over the weekend hit market sentiment and is driving safe-haven flows.

The pound is heading lower in risk-off trade while investors are favoring the safe-haven U.S. dollar following the unprecedented attack.

The greenback is also benefiting from Friday's blowout non-farm payroll data after the jobs report shows that 336k jobs were created in September and August and July's data was also upwardly revised by significant amounts. However, the unemployment rate ticked higher, and average earnings rose at a slower pace.

Interestingly, the market is still not expecting another interest rate hike as the base case scenario, with the market pricing in an 82% probability that the Federal Reserve will keep interest rates on hold at its November policy meeting. Several Fed officials are due to speak later today and will be watched closely for clues over the future path of rate hikes.

Meanwhile, the Bank of England may not raise interest rates further amid concerns over the outlook for the UK economy.

Recent house price data revealed that UK house prices fell by the most since 2009 in the 12 months to September. A weak housing market can have a ripple effect on the broader economy and falling house prices can hurt consumer confidence.

The UK economic calendar is quiet today; however, looking out across the week, UK GDP data will be in focus on Thursday. US inflation data will also be released on Wednesday and could drive rate hike expectations.

GBP/USD forecast – technical analysis

Last week’s recovery ran out of momentum and hit resistance at 1.2260, just below the 20 sma, and is easing lower at the start of the week. The RSI is out of oversold territory but remains below 50, and the 50 sma has crossed below the 100 sma in a bearish signal.

Sellers could look to push the price back down to 1.21, the October 6 low, and 1.2040, the October low.

Meanwhile, buyers need to retake 1.2270, the September 29 high, and the 20 sma, in order to extend gains towards 1.23, the May low.

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