DAX, GBP/USD Forecast: Two trades to watch

DAX struggles in risk-off trade

• Middle East conflict supports risk-off trade
• US treasury yields hit a 16 year high
• DAX tests support at 15000

The DAX and its European peers are set to start the day lower after steep losses in the US and Asia overnight. Stocks are under pressure amid renewed risk aversion owing to an escalation of tensions in the Middle East, and as US bond yields rose to a 16-year high on concerns that the Federal Reserve will keep interest rates higher for longer.

The 10-year US government bond gained for a fourth straight day, heading towards 5%. Federal Reserve Bank of New York President John Williams said the interest rates will have to stay restrictive for some time in order to bring inflation back to the 2% target.

Meanwhile, highlighting the risk-off flows, gold continues to hold onto the 7% gains it has booked since Hamas attacked Israel almost two weeks ago.

There is no major European data today. The focus will be on Fed Reserve Chair Jerome Powell’s speech.

Earnings will also be in focus after an upbeat surprise from Netflix, which sent the surging 12% in after-hours, although falling margins weighed on Tesla.

In Europe, Nestle posted weaker-than-expected sales, and business software maker SAP also missed expectations in Q3.

DAX forecast – technical analysis

Failure to break above the 20 sma earlier in the week, combined with the RSI below 50 and the 50 sma crossing below the 200 sma, keeps sellers hopeful of further losses.

The DAX is testing 15000, the round number, with a break below here, and 14945, the October low needed to create a lower lo, bringing 14800, the March 27 low into play, ahead of 14450, the 2023 low.

Any recovery would need to rise above the 20 sma and 15300, the weekly high, to bring the falling trendline resistance at 15450 into focus and 15575 the October high.

GBP/USD falls ahead of Fed Powell’s speech

• Federal Powell to speak at the New York Economics Club
• US rises on sage haven flows
• GBP/USD tests weekly low

GBP USD is falling for a third straight day on USD strength owing to haven flows, and as US treasury yields hit a 16-year high, the expectation is that the Federal Reserve will keep interest rates higher for longer.

The focus today will be on Federal Reserve chair Jerome Powell's speech at the New York Economics Club later today, where he is expected to reiterate his stance that interest rates need to remain elevated given the recent rise in inflation and the resilience of US economy.

His speech will come after the release of US jobless claims, which are expected to show that the number of Americans claiming unemployment benefits for the first time remains steady at 210K. A tight labour market supports wage growth and household consumption, aligning with hawkish Federal Reserve.

Other Fed speakers, including Bostick Bowman and Harker, will also be in focus. Any clues over the future path of rates could drive the pair.

Meanwhile, the pound is struggling after sticky inflation data yesterday, and softer wage growth earlier in the week fueled concerns of a recession. High interest rates and sticky inflation often slow consumption which accounts for a large part o the UK economy.

GBP/USD forecast – technical analysis

GBP/USD ran into resistance at the 20 sma and rebounded lower testing 1.2120, last week’s low. Sellers could be encouraged by the 50 sma crossing below the 200 sma in a death cross sell signal.

A break below here is needed to create a lower low and bring 1.2035, the October low into target.

Buyers would need to rise above the 20 sma and the weekly high of 1.2220 to be able to extend gains towards 1.23 the falling trendline resistance and 1.2340, the October high.