DAX, GBP/USD Outlook: Two Trades to Watch

DAX struggles for direction amid a light economic calendar

• German manufacturing PMI slumped to 40.6
• The US is closed for July 4^th public holiday, so expect light volumes
• DAX testing the lower band of the rising channel

The DAX is set to open launch Li unchanged as investors wait for the next catalyst amidst a light economic calendar and a US holiday.

The index closed lower yesterday following disappointing June manufacturing PMI data which showed that activity contracted at a faster pace in June, with output and new characters falling. Japanese manufacturing PMI slumps to 40.6, down from 43.2 in May, marking the fifth straight monthly decline.

The data comes amid a recession in Germany, as the country battles persistently high inflation. The IFO institute warned that the German economy would contract more than previously expected this year as sticky inflation takes its toll.

The economic calendar is light today, with just German trade data released; the figures showed that exports fell by 0.1% MoM in May, while imports expanded 1.7%, resulting in a trade surplus of €14.4 billion, down from €16.5 billion.

Meanwhile, news that China will restrict the export of some key materials for chipmaking could keep sentiment subdued.

The US is closed for Independence Day so trading could be muted and volumes light.

DAX outlook – technical analysis

After a strong rise on Friday, pushing the price back into the multi-month ascending channel, the DAX is losing momentum. The price is testing the 20 sma and rising trendline support around 16080. A break below here exposes the 50 sma at 16000 ahead of 15700 the 100 sma and the June low.

On the upside, should buyers successfully defend the 16080 level a rise back towards 16333, the May peak could be on the cards ahead of 16428, the June peak.

 

GBP/USD at 1.27 after weak manufacturing data & US recession concerns

GBP/USD is holding steady around 1.27 in quiet trade after a downbeat daily performance yesterday.

GBP/USD edged modestly lower in the previous session after weak UK manufacturing activity data and as the US yield curve inversion renewed fears of an economic slowdown in the US, driving safe haven flows.

The US 2-year and 10-year treasury yields inverted to the deepest level since 1981 on Monday amid expectations that the Fed will continue to raise interest rates tipping the US economy into recession.

US ISM manufacturing PMI was also weaker than expected in June, falling to 46, below the 47.2 expected. However, the market is still pricing in an 85% probability of the Federal Reserve raising interest rates by 25 basis points in July. Meanwhile, the market is pricing in a similar probability of a 50 basis point rate hike by the Bank of England in August.

UK manufacturing PMI fell to 46.5, its lowest level this year. Input prices fell, which should bode well for UK inflation, which remains at 8.7% and among the highest of G7 nations.

There is no high-impacting UK economic data due today. And the US is closed 4 the public holiday, so volumes are expected to be light.

Looking ahead, UK services PMI data is due on Wednesday, along with the minutes of the June FOMC meeting, which could provide further clues about the future path for interest rates.

GBP/USD outlook – technical analysis

After a bullish engulfing candle on Friday, pushing the price back above the 20 sma, the price has stalled as it struggles for momentum.

A fall below the 20 sma opens the doors to 1.26, last week’s low and 1.2550, the multi-month rising trendline.

Should buyers defend the 20 sma, a test of resistance at 1.2750, last week’s high could be on the cards ahead of 1.2850, the 2023 high.