Oil, DAX Forecast: Two trades to watch

Oil slumps 5% as the geopolittcal risk premium falls

• Israel’s retaliatory attack on Iran avoided oil infrastructure
• It raises hope the conflict won’t escalate further
• Oil gaps lower over the weekend

Oil prices are tumbling over 5% lower on Monday after Israel's retaliatory strike on Iran over the weekend avoided key oil and nuclear infrastructure, calming fears of supply disruption.

Instead, Israeli fighter jets focused on military sites across Iran, in response to missile attacks at the start of October. This is seen as opening a de-escalatory path in the Middle East.  Israel's retaliation was more restrained and proportionate than markets had feared, raising optimism that the conflict won’t escalate further.

On the demand side, weak economic activity in China continues to weigh on sentiment, with data pointing to a decline in industrial profits despite recent government stimulus. China PMI data is due later this week.

Elsewhere, the markets are keeping an eye on OPEC plus ahead over potential output adjustment in December, as well as the implication of the US elections.

Oil forecast -technical analysis

Oil trends lower over the long term, trading below its falling trendline dating back to September 2023. More recently the price has formed a series of higher lows from the September 65.20 low. The price failed to rise above the 50 SMA and rebounded lower, retreating the rising trendline support.

Sellers will look to take this out and test 67.30 support ahead of 65.20 the 2024 low.

Any recovery needs to rise above  70.00, the psychological level, and the 71.50-72.50 resistance zone to bring 75.00 into focus ahead of the 200 SMA at 77.10.

DAX rises ahead of a key week for global risk events

• Eurozone & US inflation & GDP data are due this week
• Big tech earnings will also drive sentiment
• DAX trades just below its record high

The DAX, along with its European peers, are heading higher on Monday as investors look ahead to a busy schedule of economic data releases and earnings from key US tech companies.

Today’s move higher adds to gains on Thursday and Friday last week after data showed that German business sentiment improved. On Friday, the German Ifo business climate rose to 87.3 in October from 86.4 in September, marking an improvement in business expectations. This came following a pickup in October's competent composite PMI survey, which also showed improving business sentiment.

While the DAX fell 1% last week, it has been broadly supported across the previous months as the ECB cuts interest rates. ECB Luid De Guindos, who is due to speak later today, could shed more light on the pace of ongoing cuts from the central bank. Otherwise, the economic calendar is quiet today.

This week, things will ramp up with eurozone inflation and GDP figures and inflation, GDP, and jobs data from the US, which will likely impact sentiment, along with earnings from big tech, including Apple, Meta, Amazon, and Microsoft.

DAX forecast- technical analysis

The DAX has formed a series of higher lows and higher highs since the early August low of 17k. The price reached an all-time high of 19684 before easing lower.

Buyers supported by the RSI above 50 will look to retake 19684 and rise to fresh record highs towards 20k.

Immediate support can be seen at 19300, last week’s low. Below here, 19k comes into play, with a break down here negating the near-term uptrend and exposing the 200 SMA at 18200.