DAX, USD/JPY Forecast: Two trades to watch

DAX rises for a third session despite weak data

• Factory orders slump -5.4%
• Retail sales fall  0.6% MoM in November
• DAX rises towards 20,500

The DAX is rising for a third straight day despite a weaker close in the US and softer than forecast data from Germany. SAP is leading the rise, up over 1%, while Siemens, Airbus, and Allianz also saw modest gains.

German factory orders plunged -5.4% in November compared to the previous month, far worse than the 0.2% decline economists had predicted.

This marked the sharpest drop in factory orders in three months, highlighting the industry’s weakness just weeks ahead of the German election. Following the data, automakers are the worst-performing sector.

Meanwhile, German retail sales fell unexpectedly in November, dropping by 0.6% despite hopes for a recovery based on pre-Christmas promotions.

The soft data comes after German inflation rose by more than expected 2.6% year on year, raising concerns surrounding the economy, which appears to be in recessionary territory but with rising inflation.

Still, the ECB is widely expected to cut rates this month and continue cutting rates across the year to support the economy. The prospect of further rate cuts is keeping the DAX supported even when the data is weak; in a bad news is good news scenario.

Attention will now turn to eurozone PPI figures and economic sentiment PPI is expected to rise 1.5% MoM after rising 0.4% in October. Meanwhile, economic confidence is expected to dip to 95.6 from 95.8

DAX forecast – technical analysis

The DAX has recovered from the 19,700 zone, rising above 20,000 as it heads towards 20,500 and fresh all-time highs. The RSI supports further upside while it remains out of overbought territory.

Support is at 20k and 19700, with a break below the latter creating a lower low.

USD/JPY rises ahead of Fed minutes & ADP payrolls

• USD tracks treasury yields higher
• Strong US data revives inflation concerns
• ADP payrolls are forecast to slip to 140k vs 146k
• USD/JPY trades at a 6-month high

The US dollar is heading higher on Wednesday, extending gains from yesterday as investors digest stronger-than-expected data and look ahead to the Fed minutes as well as ADP payrolls later today.

ADP payrolls are expected to show 140,000 jobs added in the private sector in December. The data comes after jolts jobs openings were stronger than expected at 8.08 million up from 7.79 million in the previous month, suggesting the US labour market remains solid.

US ISM services PMI was also stronger than expected at 54.1 up from 52.2. However, the costs subcomponent showed that cost pressures were at the highest since 2023, raising concerns of a revival in inflation

Attention will now be on the minutes of the December Fed meeting, where the Fed cut rates by 25 basis points but surprised the market by signalling just two rate cuts in 2025. Still after yesterday’s strong data, the market is now only pricing in one rate cut this year.

The yen continues to struggle after the BoJ keeps quiet about the timing of a possible rate hike. BoJ governor Ueda said in a press conference earlier this week that officials were looking to raise interest rates further only if the economy allows it.

USD/JPY forecast - technical analysis

USD/JPY has extended its recovery from the December 3 low of 148.64, rising above the 200 SMA, the rising trendline dating back to 2022 and the 78.6% fib retracement of the 162 high and 139.50 low. This combined with the RSI above 50 could support further gains.

Buyers will look to extend gains towards the 160.00 round number before bringing 162.00, the 2024 high, into focus.

Immediate support can be seen at 157.1 the 78.6% retracement. A break below here and the 155.00 round number exposes the rising trendline support at 154.00.