DAX, USD/JPY Forecast :Two trades to watch

DAX rises ahead of GDP & CPI data

• German CPI is expected to cool to 4% YoY in Oct from 4.5%
• German GDP is forecast to slow -0.3% QoQ from 0%
• DAX found support at 14600

The DAX, along with its European peers, has started the week on the front foot after losses across last week.

Immediate attention is will be on German inflation data, which is expected to show that inflation in the eurozone's largest economy cooled further in October to 4%, down from 4.5%. Meanwhile, German GDP data will also be under the spotlight and is forecast to contract by 0.3% in Q3 after growth stalled at 0% in the second quarter.

The data comes after the ECB paused rate hikes last week, leaving the main policy unchanged at 4% following ten back-to-back interest rate hikes.

The central bank indicated that it would leave interest rates at the current level for a sufficiently long period of time in order to tame inflation, which is still over two times the ECB's 2% target. However, the central bank also raised concerns over the economic backdrop in the region, with a recession increasingly likely across the second half of the year.

Worse than expected GDP data could fuel concerns of a prolonged economic turn downturn and pull stocks lower. Meanwhile, stickier-than-expected inflation could also raise expectations of the ECB, keeping interest rates higher for longer, hurting private consumption and business borrowing, pulling stocks lower.

DAX forecast – technical analysis

DAX has created a series of lower lows, testing support at 14600 last week. Sellers will need to break below this level to extend the selloff to 14450 the March low, and 14000 round number.

Any recovery must rise above 14950 last week’s high and October 4 low, to expose the 20 sma at 15050.

USD/JPY falls below 150.00 ahead of a central bank busy week

• BoJ rate decision on Tuesday & Fed on Wednesday
• Could BoJ adjust YCC & raise the inflation target?
• USD/JPY tests 20 sma

USD JPY is inching lower, extending losses from last week, and has fallen below the critical 150 level in quiet trade with both the Federal Reserve and the BoJ meetings in focus.

Attention is squarely on the BOJ meeting early on Tuesday, where the central bank could announce changes to its yield curve control policy amid high inflation and a weak yen.

Data last week showed that Japanese consumer inflation rose by more than expected, fueling bets that the BoJ could scale back its ultra-loose monetary policy by adjusting its yield curve control policy and potentially raising its inflation forecast, measures which could also be seen as steps towards the central bank ending negative interest rates in 2024.

A hawkish BoJ would benefit the yen, which has been one of the worst-performing Asian currencies this year.

As well as the BoJ rate decision, traders will watch for any intervention by Japanese authorities in the currency markets to support the yen. Last week, USD/JPY pushed over 150 the level, which is widely seen as the line in the sand for the Japanese government.

Meanwhile, the US dollar is pushing higher against its major pairs at the start of the week amid the ongoing conflict in the Middle East and as investors look ahead to the Federal Reserve interest rate decision on Wednesday. Ahead of the decision today, the economic calendar is relatively quiet, with just the Dallas manufacturing index due today, which is expected to improve slightly to -15 from -18.1. However, the index is unlikely to influence bets on the Fed's interest rate decision on Wednesday, where the central bank is widely expected to leave rates unchanged at 5.25 to 5.5% but could keep the door open for a December hike.

USD/JPY forecast – technical analysis

After rising to 150.77 last week, USD/JPY has eased lower is testing support of the 20 sma at 149.50. The RSI remains above 50.

Should the 20 sma hold, buyers could look to test 150.00 again ahead of 150.77 and 151.70 the rising trendline resistance.

On the flip side, a break below the 20 sma opens the door to 148.75 October 17 low and the 50 sma at 148.35 ahead of 147.30 the October low.