USD/JPY, DAX Forecast: Two Trades to Watch

USD/JPY falls as the BoJ hints to ending negative rates

• BoJ’s Ueda hints at a pivot away from negative rates
• US inflation on Wednesday is a central focus
• USD/JPY falls below 146.00 and the 20sma

USD/JPY is falling sharply at the start of the week amid a weaker US dollar and as the yen gets a boost after BoJ governor Ueda hints at a potential pivot from negative interest rates.

The US dollar is falling away from a 6-month high reached last week as bulls pause for breath. The USD index rose last week for an eighth straight week, marking the longest weekly rally in nine years after a series of stronger-than-expected data boosted expectations that the Federal Reserve could keep interest rates higher for longer or could raise rates higher by the end of the year.

This week, the focus is squarely on US inflation data due on Wednesday, which should give more clues on monetary policy and the future path for interest rates.

Meanwhile, the Japanese yen is outperforming its major pairs, rising over 1% after Governor Ueda said that the BoJ could have sufficient data by the end of the year to determine whether rates should stay negative or not.

Kazuo Ueda said that the BoJ's 2% inflation target was coming into sight, which is allowing the central bank to consider tightening monetary policy.

A pivot from the BOJ would bring an end to almost a decade of negative interest rates and would also narrow the divergence between the Federal Reserve and the BOJ, taking some pressure off the yen.

USD/JPY forecast – technical analysis

USD/JPY is falling away from 147.85, the 2023 high, driving below the 20 sma and 146.00 round number. This, combined with the bearish engulfing candle, keeps sellers hopeful for further losses.

Support can be seen at 145.00, the July high and round number, with 144.35 coming in play below there, the September low. A break below here creates a lower low.

On the upside, should buyers push back above the 20 sma at 146.30 before bringing 147.85 back into focus.

DAX rises with this week’s ECB rate decision in focus

• DAX rises after China data lifts the market mood
• ECB rate decision not clear cut
• DAX testing falling trendline resistance

The Dax is pointing to a positive start after posting a 0.6% fall across the previous week. The market mood is being buoyed by better-than-expected data from China over the weekend. China's consumer price inflation rose into positive territory and producer price inflation also fell at a slower pace. The data has fueled optimism that China’s economy could be stabilising after a substantial slowdown in growth so far this year.

Still, the mood remains cautious at the start of the week as investors look ahead to the ECB interest rate decision later this week. The ECB will meet on Thursday, but the decision is still very much up in the air as to whether the ECB will hike interest rates again or not.

Recent data from the region has highlighted the deteriorating economic outlook. Q2 GDP for the region was downwardly revised to just 0.1% in Q2. Furthermore, the Citigroup surprise index Is deep in negative territory. Should the ECB pause hikes or hike rates but signal that it will pause hikes going forward, this could be good news for stocks.

Today, the eurozone economic calendar is quiet, with just Italian industrial production due to be released, which is set to show a 0.3% decline MoM.

Meanwhile, tech stocks will be in focus since Alibaba announced that its outgoing chief executive Daniel Zhang, will also step down as the head of its cloud unit.

DAX forecast - technical analysis

The DAX rose from 15575, last week’s low, and has risen back above resistance at 15700 and the 20 sma at 15750 and is testing the falling trendline resistance.

To extend the rebound, buyers will look to rise above the trendline at 15860 and 15900/50, the 50 and 100 sma ahead of 16044, the August high.

On the downside, sellers will look to take out 15700 and 15575 to expose the 200 sma at 15500.