DAX, EUR/USD Forecast: Two Trades to Watch

DAX holds steady as headwinds mount

• DAX struggles on China worries
• US retail sales & earnings to influence the price
• DAX caught between 16000 and 16200

DAX is pointing to a flat open after falling -0.25% in the previous session, knocked by weaker-than-expected growth in China, a key trading partner for Germany. Concerns over China are one of several headwinds that Germany is facing over the coming months.,

The Bundesbank also warned that the German economy could shrink by more than expected, even just a few weeks ago. Germany’s economy is very industry heavy and is bearing the brunt of the drop in global demand for goods. Higher borrowing costs mean less investment and consumers have changed their habits, spending more on services and travel than on goods following the pandemic.

The Bundesbank noted that business confidence worsened for a second straight month in June, and as a result, believes that the outlook could be worse than a 0.3% contraction forecast less than a month ago.

Meanwhile, the DAX could find support from growing optimism that the Federal Reserve is close to peak rates and recent upbeat data, which could suggest that the US may avoid a hard landing.

Today the eurozone economic calendar is quiet. The DAX will look towards US retail sales data and US earnings which ramp up today, with releases from Morgan Stanley, Bank of NY Mellon, Bank of America, and Charles Schwab.

DAX forecast – technical analysis

The DAX rebounded off a low of 15450 last week, retaking the 20, 50 & 100 sma before running into resistance at 16200 the July 3rda high. The price trades between the 50 sma at 16000 and the 16200 top.

A breakout trade here will see sellers look for a break below 16000 to expose the 100 sma at 15820, before bringing 15450 into focus, which could confirm a double top formation.

Buyers could look for a rise above 16200 to create a higher high, opening the door to 16335, the May high, and 16430, the all-time high.

EUR/USD rises to a 17-month high ahead of retail sales data

• EUR rises after hawkish ECB commentary
• USD retail sales may offer some relief
• EUR/USD deep in overbought territory

EUR/USD rose to a 17-month high on Monday amid ongoing USD weakness and as the EUR finds support from hawkish ECB commentary.

ECB policymaker Bostjan Vasle reiterated that the central bank would need to keep raising interest rates at the next meeting owing to high core inflation. ECB governing council member Joachim Nagel also said that the ECB must raise interest rates again this month.

Both the Fed and the ECB are due to announce interest rate decisions next week. For now, the market sees the ECB hiking rates in July in September. In contrast, the market is pricing in just one more rate hike from the Federal Reserve in July.

The ECB is therefore expected to keep hiking rates for longer than the Fed, which is lifting EUR/USD at least for now. When the focus shifts away from inflation and central banks and towards growth later in the year, the euro could struggle.

Back to today, attention is now on US retail sales which are expected to rise 0.5% MoM in June, after rising 0.3% in May. Stronger retail sales could highlight the resilience in the US consumer and lift the USD.

There are no Fed speakers today as policymakers enter the blackout period ahead of next week’s FOMC meeting.

EUR/USD forecast – technical analysis

EUR/USD extends gains towards 1.13, but remains deeply in overbought territory, so buyers should be cautious. A rise above 1.13 opens the door to additional upside towards 1.1385 the late February 2022 high.

On the downside, support can be seen at 1.12, Monday’s low, with a break below here opening the door to 1.1090 the May high.