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DAX, GBP/USD Forecast: Two trades to watch

Article By: ,  Senior Market Analyst
November 19, 2024 4:46 AM

DAX rises with attention on EZ CPI & Trump appointments

  • EZ CPI is expected to confirm the 2% preliminary reading
  • Trump’s Treasury Secretary appointment could give clues on trade tariffs
  • DAX trades in a holding pattern

The DAX, along with its European peers, started Tuesday on the front foot as investors await more direction from US President-elect Donald Trump as he continues to pick his cabinet and ahead of eurozone inflation data.

Expectations are for eurozone CPI to confirm the 2% preliminary reading in October, up from 1.7% in September. An upward revision that takes inflation above the ECB's 2% target could reduce bets on a 50 basis point December cut. A less dovish ECB rate path could put pressure on the DAX.

The data comes after ECB president Lagarde warned yesterday that Europe was lagging behind China and America in innovation and productivity.

Looking across the US, the economic calendar is relatively quiet, with just housing starts in focus. Meanwhile, Trump's selections for his cabinet when he takes office on January 20th have been attracting attention. The focus is currently on Trump's pick for the influential post of Treasury Secretary. His pick could give an indication of what he plans to do with trade tariffs.

Trade tariffs, particularly on cars, could negatively impact the German economy as well as DAX.

DAX forecast - technical analysis

After reaching an all-time high of 19,684 in mid-October, the price has corrected lower and trades between 19500 on the upside and 19000 on the lower side. The RSI is tipping below 50, and the price has fallen below the 50 SMA.

Sellers will look to take out 19k to expose the 100 SMA at 18,775. Below here, the 200 SMA comes into play at 18430.

Should buyers retake the 50 SMA, a rise above 19.5k creates a higher high and brings 19,684 and fresh all time highs into focus.

GBP/USD falls ahead of BoE Bailey’s appearance & tomorrow’s CPI data

  • BoE Andrew Bailey will be questioned by the UK Treasury Select Committee
  • UK CPI is expected to rise to 2.2% YoY from 1.7%
  • Trump’s search for Treasury Secretary is in focus
  • GBP/USD heads towards 1.26

GBP/USD is resuming its downtrend as the USD rises following a bout of profit-taking yesterday.

Today, attention turns to President-Elect Trump’s search for a treasury secretary and BoE governor Andrew Bailey’s testimony before the MPC hearing ahead of tomorrow's UK inflation data.

Later today, Andrew Bailey will take the hot seat before of the UK Treasury Select Committee to answer questions about the central bank's monetary policy. The market will scrutinize his responses closely for further clues about when the central bank could cut rates again.

In November, the Bank of England cut rates by 25 basis points to 4.75% and revised inflation projections higher. At the time, Andrew Bailey said that a gradual approach to cutting rates would help the central bank assess the impact of rate reductions and the changes from the Budget.

Inflation data is due tomorrow and is expected to show that CPI rose to 2.2% YoY in October up from 1.7%. Hotter-than-expected inflation could see the market lower Bank of England rate cut expectations, boosting GBP. The market is not expecting the central bank to cut interest rates in December but is looking to a 25 basis points rate reduction in February.

The U.S. dollar is pushing higher as attention turns to Trump's search for his Treasury Secretary. Names being considered include Apollo Global Management chief executive Mark Rowan and former Fed governor Kevin Warsh.

Given the large US budget deficit, the market will be looking for a candidate who could stand up against some of Trump's inflationary plans. Trump is widely expected to cut taxes, which could boost the budget deficit.

Today's move higher in the USD comes after the dollar eased back from its yearly high yesterday on profit-taking. Still, the dollar is up more than 2% this month on expectations that the Fed will cut interest rates at a slower pace.

GBP/USD forecast - technical analysis

GBP/USD has fallen below its 200 SMA and 1.27 before finding support at 1.26.  On the weekly chart 1.26 is the 100 SMA and also a trendline support dating back to August 2021. So could be a tough nut to crack.

Sellers will look to take out 1.26 to exceed the bearish trend towards a 1.25 round number. Below here, the 2024 low of 1.24 comes into focus.

Meanwhile, on the upside, buyers will look to overcome 1.27 to expose the 200 SMA at 1.2820.

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