DAX, USD/JPY Forecast: Two trades to watch

DAX edges higher after German factory orders rise & ahead of US jobs report

• German factory orders rise 3.9% MoM
• German manufacturing sector stuck in a downturn
• DAX consolidating above 15000

The DAX and its European peers are heading modestly higher amid a cautious market mood, as investors look ahead to the US jobs report and digest the latest German factory orders data.

German industrial orders rose 3.9% MoM in August after tumbling 11.3% in July. Expectations had been for a rise of 1.8%.

Despite the upbeat data Germany’s manufacturing sector, which accounts for around 1/5 of its economy, remains stuck in a deep downturn. Earlier in the week, the manufacturing PMI for Germany came in at 39.6, well below the 50 level separating expansion from contraction.

The data also came after German exports dropped 1.2%  MoM in August, down from 1.9% in July.

The trend of weak economic indicators from Germany has raised concerns of a prolonged downturn in the eurozone's largest economy.

Looking ahead attention now turns to US non-farm payroll report, which will likely be a key factor in the Federal Reserve's next interest rate decision. Bond yields have been a key driver in the equity markets over the past few weeks, and a strong labour market report could see US yields push even further, dampening demand for equities.

Dax forecast – technical analysis

The DAX has recovered from the weekly low of 14945 and is consolidating around 15100, waiting for its next cues.

Sellers will be encouraged by the 20 sma crossing below the 200 sma and the 50 sma heading for a cross below the 200 sma, as well as the RSI below 50. Sellers will need to take out 14965 to create a lower low and extend the bearish trend.

Buyers will look for a rise above 15177, yesterday’s high, towards 15465, the August low and 20 sma. A rise above here could negate the downtrend. A rise above the 200 sma at 15615 could create a more positive bias.

USD/JPY rises ahead of the US non-farm payroll

• US NFP to show 170k jobs added in September
• Unemployment is expected to fall to 3.7% from 3.8%,
• Wage growth of 0.3% forecast vs 0.2% previous
• USD/JPY tests support of 20 sma

The USD/JPY is rising as the US dollar index charges towards the 12th straight winning week. Investors are focused on the US non-farm payroll report later, which will be a key factor in the Federal Reserve's interest rate decision next month.

Not as bad as feared Japanese household spending, which declined by 2.5% YoY in August after falling 5% in July, failed to impress yen bulls.

All eyes are now on the US non-farm payroll, which is expected to show that 170k jobs were added in September, down slightly from 187k in the previous month. Meanwhile, unemployment is expected to tick lower to 3.7% from 3.8%, and average hourly earnings are expected to rise to 0.3% from 0.2%.

The lead indicators this week have painted a mixed picture, with the JOLTS job openings jumping sharply and jobless claims remaining at low levels by historic standards, yet the ADP payrolls fell steeply.

A strong US nonfarm payroll report would support the Federal Reserve's more hawkish bias and would support another interest rate hike from the US central bank when it meets in November. Meanwhile, a weaker report could help yields lower and see investors rein in hawkish Fed bets, pulling the USD lower.

USD/JPY forecast - technical analysis

USD/JPY has fallen back from the peak just above 150.00 and is testing support on the 20 sma around 148.40.

A stronger-than-expected NFP report could see this support hold and buyers push the price back towards 150.00.

Meanwhile, a weaker report could see sellers break down the 20 sma to test 147.85, the early September high, before opening the door to 147.30, the weekly low.