DAX, GBP/USD Forecast: Two trades to watch

DAX rises to record highs despite weak PMI data

• Dax tracks higher after Nasdaq 100 & S&P500 record highs
• German composite PMI falls to 47.2
• DAX rises above 20k to record highs.

After the S&P500 and the Nasdaq 100 closed at all-time highs, the DAX is following suit.

The German index has reached fresh record levels despite weaker-than-expected data and amid expectations that the ECB will cut interest rates again this month.

The downbeat economic outlook continues in Germany, with the composite PMI considered a good gauge for business activity falling to 47.2, a downward revision from the 47.3 preliminary reading. The PMI below 50 points to the economy remaining in contraction territory for another month. Both the service sector and the manufacturing sector are in recession. The weak data boosts the chances of more aggressive rate cuts from the ECB.

Still, the DAX is proving to be a standout performer in Europe amid uninspiring alternatives. Tech stocks are in demand, and that's helping the DAX rise compared to its peer, the FTSE100, which lacks a strong tech component.

The DAX has also been unscathed by the political drama in France, where PM Michel Barnier is to face a vote of no confidence today, which he will likely lose.

Looking ahead to the US session, plenty of data could influence market sentiment, including ADP payrolls, ISM services PMI, factory orders, and Fed speakers.

DAX forecast – technical analysis

The DAX has broken out of a bull flag pattern, rising above 20k to fresh record highs. The RSI is overbought so buyers should be cautious. There could be a period of consolidating or a move lower coming.

With blue skies above, buyers will look to extend gains towards 20.5k as the next logical target. Support can be seen at 19,670, the October high and 19,300 the 50 SMA. Below here 18,800 is the next level to watch, with a break below here creating a lower low.

GBP/USD falls as UK services PMI falls to its lowest level in a year

• UK services PMI dropped to 50.8 in November
• US data, including ADP payrolls & ISM services PMI, are due
• GBP/USD needs to retake 1.2750 to extend its recovery

GBP/USD is falling as the service sector, the dominant sector in the UK economy, saw activity growth slow in November although not by as much as initially thought.

The UK services PMI eased to 50.8 in November, down from 52 in October, marking its weakest level since October last year. The level 50 separates expansion from contraction.

The survey noted a sharp drop in business optimism, which reflected concerns regarding the labor government's budget unveiled on October 30th. The budget included an increase in Employers' National Insurance contributions and a 7% rise in the minimum wage. There are concerns that these policies will push up employment costs, resulting in a gloomier outlook.

BoE Governor Andrew Bailey had highlighted the budget as inflationary, with policymakers supporting a measured approach towards cutting interest rates. This has offered some support to the pound against a strong recent rally in the USD.

USD is heading higher as investors prepare for a slew of data that could provide clues about the Fed's outlook for interest rates.

ADP payrolls will be the focus ahead of Friday's nonfarm payroll report. They are expected to rise by 150k after a strong growth of 223k in October.

Meanwhile, the ISM services PMI will also provide further clues about the health of the dominant sector in the US. Expectations are for 55.5, down from 56, but still solid growth. The market will also be paying attention to the employment subcomponent of the report for further clues to Friday's NFP.

The data comes after Jolts job openings came in stronger than expected, while layoffs fell to a 1.5-year low, highlighting the strength of the labor market.

US factory orders and Fed speakers will also be in focus.

Recent Fed speakers have said they lean towards a 25-basis point rate cut this month amid confidence that inflation is cooling towards the 2% target while the jobs market remains solid.

GBP/USD forecast - technical analysis

The trend has been bearish after falling 3% in just two months between late September and late November. More recently, GBP/USD recovered from the 1.25 November low and rose to 1.27 before easing back to 1.26.

In order to extend the recovery, buyers will need to rise above 1.2750, breaking out of the descending channel to expose the 200 SMA at 1.2820. Above here buyers could gain traction.

Immediate support can be seen at 1.26. Should sellers take out this level, it opens the door to 1.25 the November low. A break below here creates a lower low, extending the bearish trend.