DAX, GBP/USD Forecast: Two trades to watch

DAX rises to record highs after more Chinese stimulus

• China unveils further stimulus measures
• German GFK consumer confidence rises
• DAX rises above 19k to new ATHs

The DAX and its European peers have opened higher amid a renewed boost from further Chinese stimulus.

China is pledging more stimulus to support its slowing economy. The world’s second-largest economy will deploy the necessary fiscal spending to meet its economic growth targets.  China is reportedly considering injecting up to 1 trillion yuan into its largest state banks to increase their capacity to boost the economy.

This comes following the Chinese central bank unveiling its largest stimulus program since the pandemic earlier in the week.

The prospect of looser monetary policy is also boosting the DAX and global shares. Last week, the Federal Reserve joined other central banks and cut rates, signaling the start of its rate-cutting cycle.

The market is pricing in a 62% probability that the Fed will cut rates by 50 basis points further in the November meeting.

Meanwhile, German consumer confidence revealed a slight pickup in morale. The German GfK consumer confidence indicator rose from -21.9 in September to -21.2 in October. This comes after a severe fall in the previous month and marks the first improvement in consumer climate since June.

Other macro points this week raised concerns over a recession in Germany as the Ifo business climate tumbled and PMI data showed an ongoing contraction.

ECB President Christine Lagarde is due to speak. Any comments regarding a weaker growth outlook could dampen optimism.

Looking ahead, attention will be on  Federal Reserve chair Jerome Powell, who is due to speak later today and could provide further clues about the outlook for rates. Meanwhile, US jobless claims data will be in focus as the focus shifts to the US labour market.

DAX forecast – technical analysis

The DAX rises above 19000 to fresh all-time highs. The RSI supports further gains while it remains out of overbought territory. The next logical target would be 19,500 and about 20,000, the psychological level and also the rising trend line resistance dating back to June 2022.

On the downside, immediate support is at 19,000 and a break, but I here could open the door to 18,200, the September low.

GBP/USD rises ahead of Fed Chair Powell & US jobless claims

• Nerves surrounding the UK budget could limit gains
• US Fed Chair Powell & several more Fed officials will speak
• GBP/USD rises towards 1.34

GBP/USD steadies after weakness yesterday as the market mood rebounds, favoring the riskier pound over the safe-haven U.S. dollar.

BoE’s Megan Greene warned that the Bank of England must be cautious about reducing interest rates. Her comments mirror those of BoE governor Andrew Bailey earlier in the week.

 This contrasts with last week's bumper 50 basis point move by the Federal Reserve. Whilst the pound has benefited from the BoE—Fed divergence, it could struggle to push much further as attention turns towards next month's budget and the Bank of England interest rate decision a few days later.

Prime Minister Keir Starmer has already warned that the UK budget will be painful. Traders are concerned about the impact of expected rate hikes on the economy.

Today, the UK economic calendar is quiet, and the US dollar will likely drive the pair along with sentiment.

The US dollar is falling after Federal Reserve governor Adriana Kugler said she fully supported the A50 basis point rate cut, as attention should shift towards supporting the US labour market.

Her comments come ahead of a slew of Federal Reserve speakers later today, including chair Jerome Powell and New York Fed President Williams. The market is pricing in a 62% probability of a 50 basis point rate cut, and Dovish-sounding Fed speakers could raise bumper rate cut bets.

Attention will also be on US jobless claims, particularly as the focus shifts from US inflation to the jobs market. Any upward surprise to jobless claims could send the US dollar lower.

GBP/USD forecast – technical analysis

GBP/USD has been trending higher since the end of April, forming a series of higher highs and higher lows. The price ran into resistance at 1.34 and has corrected lower. Buyers will look to push above 1.34, bringing 1.35, the round number, into play.

On the downside, support can be seen at 1.3265, the August high. Below 1.31, the round number comes into play, and a move below 1:30 will create a lower low.