DAX, GBP/USD Forecast: Two trades to watch

DAX hovers around record highs as bulls pause for breath

A cautious market mood ahead of inflation reports this week
German consumer confidence to stabilize in March
DAX hovers below 17500 at an all-time high

The DAX and its European peers are trading largely unchanged on Tuesday as markets struggle for direction ahead of key inflation data later in the week. The mood has turned more cautious recently after last week's impressive rally ahead of a series of inflation reports from the eurozone on Friday and Germany, France, and Spain on Thursday.

Meanwhile, the US Federal Reserve's preferred measure for inflation, the PCE index, is also due to be released on Thursday.

Today, German consumer confidence figures came in line with expectations, inching higher to -29, up from -29.7 in February. The data suggests that consumer confidence will stabilize in March but at low levels as consumers expressed concerns about the health of the economy and rising prices.

On the earnings front, Puma is rising 2.4% despite the sportswear company saying it expects a weaker first half of 2024 owing to negative currency effects.

Munich Re is also rising 1.5% after the reinsurance giant’s profit fell in the final quarter of 2023 partly due to hurricane Otis, but was still stronger than forecast.

DAX forecast – technical analysis

The DAX trades above its rising trendline dating back to November last year. After a strong run-up, the price hovers around the all-time high, just below 17,500.

The RSI is on the verge of tipping into overbought territory, so buyers should be cautious; a pullback or at least a period of consolidation could be on the cards.

A rise above 17500 could see buyers aim towards 18000 and fresh all-time highs.

Support can be seen at 17150, the rising trendline, and 17,000, the January high.

GBP/USD grinds higher ahead of US data

GBP is supported by reduced BoE rate cut bets
US durable goods, consumer confidence data due
GBP/USD rising towards the falling trendline resistance

GBP/USD is advancing for a sixth straight day as it heads towards 1.27 amid a weaker US dollar. The pound has gained despite a lack of high-impacting UK economic data.

The UK economic calendar is quiet again today. The focus will be squarely on US numbers, including durable goods orders, expected to fall 4.5% month on month, and consumer confidence, which is expected to tick higher to 115 after rising to 114.8 in January, its highest level since late 2021.

Today's data kicks off a busy week for U.S. macro reports, with GDP figures expected tomorrow and the Fed's core PCE, the Fed's preferred gauge for inflation, on Thursday. Should data show the US economy remains resilient and inflation sticky, USD could rise.

The pound has been supported by expectations that the Bank of England will cut interest rates later this year and by less than initially expected. The BoE is also expected to move later than the Federal Reserve with rate cutting, giving the pound an edge at the start of 2024.

The market is pricing in around 60 basis points of cuts from the BoE this year, around half of what was expected in early February. Meanwhile, the market is expecting the Fed to cut rates by around 82 basis points, down from 133 basis points in cuts at the start of this month.

GBP/USD forecast – technical analysis

After recovering from the 200 SMA, GBP/USD continues to grind higher within its symmetrical triangle.

Supported by the RSI above 50, buyers will look to break out above the falling trendline at 1.2710, also last week’s high, to head toward 1.2770, the February high, and 1.2830, the December 2023 high.

On the downside, support is at 1.26, the rising trendline support, ahead of the 200 SMA at 1,2565. A break below here could see sellers gain momentum.

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