DAX, USD/JPY Forecast: Two Trades to Watch

DAX falls to a 6-month low on fears of higher rates for longer

• Lagarde reiterated the ECB’s determination to lower rates
• Concerns over the Chinese economic recovery rise
• DAX falls below 15465 to a fresh 6-month low

The DAX has fallen to a six-month and German treasury yields rose to a 12-year high, amid a risk-off mood on fears of higher interest rates for longer and amid worries over the health of the Chinese economy.

While the market is increasingly convinced that the ECB has reached peak rates, fears are rising over how long they could remain elevated. ECB president Christine Lagarde noted that interest rates may have peaked. She also reiterated the central bank's determination to tame inflation and keep rates high until the job is done.

Meanwhile, ECB governing council member Francois Villeroy warned over the risks of doing too much and too little.

The comments from ECB policymakers came amid rising concerns over a recession in the region. German Ifo business climate came in at 82.7, falling for a fourth straight month.

Meanwhile, risk sentiment has also taken a hit from ongoing worries about the Chinese real estate sector after Evergrande failed to issue more debt. Meanwhile, investment banks and institutions have been downwardly revising their growth forecasts for China amid a faltering economic recovery. The S&P now expects China to grow just 4% this year, below the government's 5% forecast.

Looking ahead, the German economic calendar is quiet. ECB chief economist Philip Lane is due to speak, and investors will also look across to US consumer confidence data for further clues on the health of the US economy.

DAX forecast - technical analysis

DAX has broken below its 200 sma and 15465, the August low, which combined with the RSI below 50 supports further losses.

Sellers will look for a break below 15300, the February low, with a break below here opening the door to 15000 round number.

On the upside, buyers need to rise above 15465, to expose the 200 sma at 15575 to bring last week’s high of 15900 into play.

USD/JPY rises towards 150 ahead of US consumer confidence

• USD rises as 10-year treasury yield hits 16-year high
• US consumer confidence expected to ease to 105.5
• USD/JPY sees little resistance between here and 150.00

USD/JPY has risen to a fresh 10-month high, boosted by the prospect of higher interest rates for longer in the US. This is in sharp contrast to the dovish stance adopted by Bank of Japan governor Ueda.

The US 10-year treasury yields rose to a 16-year high on the prospects that the Federal Reserve will keep interest rates elevated in order to tame inflation. Minneapolis Fed President Neel Kashkari supported the more hawkish view, saying that given the surprising resilience of US economy, the Federal Reserve most likely needs to raise borrowing costs further and keep them high for some time in order to bring inflation back to the 2% target. He highlighted that the US economy is fundamentally much stronger than the central bank had realised.

Looking ahead, U.S. consumer confidence data will be in focus and is expected to cool slightly to 105.5 in September, down from 106.1 the data comes. The data comes after Federal Reserve Chair Jerome Powell said last week that a soft landing is no longer a baseline scenario.

Stronger than expected U.S. consumer confident could fuel hawkish fed bets and boost the US dollar further.

 

USD/JPY forecast – technical analysis

USD/JPY continues to trade in a rising channel and is guided higher by the 20 sma, as the pair rises to 149.00 a fresh 10-month high. There appears little in the way of the pair between here and resistance at 150.00.

Support can be seen at 147.80 the early September high, ahead 147.30 at the 20 sma. A break below here could open the door to 145.90 the September 11 low.