Gold, DAX Forecast: Two Trade to Watch

Gold bars article image for an article on Precious metals and Gold
Fiona Cincotta
By :  ,  Senior Market Analyst

Gold rises ahead of the Fed rate decision

  • Fed is expected to hike by another 25 bps
  • Likely to leave the door open for further hikes
  • Gold’s next move depends on Powell’s tone
  • 50 sma offers support at 1947

Gold is rising for a second straight day as attention turns to the Federal Reserve, which will conclude its July monetary policy meeting later today.

After a pause last month, the market is expecting the Fed to raise interest rates by 25 basis points to a range of 5.25% to 5.5%, the highest level since 2001. This is fully priced in so it's not expected to produce much of a market reaction.

Instead, the focus will be on policy guidance and Fed Chair Powell’s press conference following the announcement. The big question is whether this will be the last rate hike from the Fed in this tightening cycle.

While the CPI report for July was weaker than expected, which supports a more dovish Fed, Powell is likely to leave the door open for further hikes.

Should Powell indicate that more work needs to be done in order to bring inflation lower (core inflation is still proving to be sticky) and signal another hike is coming, the US dollar could rally, which would result in losses for U.S. dollar-denominated gold. However, it may not result in a steep sell-off because even if there is another hike after July, the end of the tightening cycle is still near.

Meanwhile, if Fed Powell adopts a softer tone and says that further hikes would be data dependent, this could see gold bulls become more focused on the end of the tightening cycle, pulling USD lower and Gold higher.

Gold forecast - technical analysis

Gold rose above its falling trendline resistance, rising to a July high of 1987 before easing lower.  The 20 sma is crossing above the 50 sma in a bullish signal, and the RSI is above 50, keeping bulls hopeful of further gains.

The price continues to hold above the 50 sma at 1947 which is the immediate support. A break below here opens the door to 1930, the May low, ahead of 1903 the June.

Resistance can be seen at 1987 the July high, and 2000 the psychological level.

gold forecast chart

DAX slips after earnings and ahead of the Fed

  • DAX starts lower, Puma, Porsche, and Deutsche Bank post earnings
  • Fed to hike rates by 25 bpd
  • DAX remains above 16000 for a 7th straight session

While the Dow may have booked its 12th straight winning session yesterday, the cheer has not translated across to Europe on the open after Microsoft and Snap disappointed with their earnings, and even though Alphabet impressed.

The Dax, along with its European peers, is set to open modestly lower on Wednesday as investors digest the latest wave of earnings and look ahead to the US Federal Reserve interest rate decision today and the ECB’s rate decision tomorrow.

Optimism that central banks could be nearing the end of the rate-hiking cycle has supported stocks.

The Fed is set to hike rates by 25bps, which is priced in, and any sense that the Fed will end its rate hiking cycle could propel stocks higher. On the other hand, hawkish-sounding Powell could drag stocks lower.

On the corporate front, Deutsche Bank reported 27% decline in Q2 profits at €763 million, although this was ahead of forecasts. Investment banking revenue slumped, and the bank warned over the need for cost-cutting even though higher interest rates lifted the retail division.

Puma will also be in focus after reporting an 11% rise in second-quarter sales, ahead of market expectations thanks to strong sales in China and resilience in Europe. Puma confirmed its full-year outlook and said it expects an operating profit of between €590 and €670 million.

Porche reported a rise in operating profits of 10.7% to 3.85 billion and confirmed its forecast for the second half of the year. The luxury car makers will revenue jumped 14% to 20.43 billion, and deliveries rise 14.7%, signalling a recovery. However, costs are also expected to go up as it digitalises operations.

DAX forecast – technical analysis

The DAX holds above 16000 for a 7th straight session and is hovering around the upper end of its recent trading range at 16200.

The price remains supported by the 20 and 50 sma at 16050, which offers near-term support. Buyers will look for a rise above 16335 the May high ahead of 16430 and fresh all-time highs.

A breakdown below 16050 and 16000, open the door to 15800, the 100 sma. A break below 15550 is needed to create a lower low.

dax forecast chart


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