USD/JPY, DAX Forecast: Two trades to watch

USD/JPY rises ahead of US data drop

• US retail sales are set to rise 0.8% vs -0.8% in Jan
• US PPI forecast to rise 0.3% MoM in Feb vs 0.3% in Jan.
• Japanese wage rises support a BoJ rate hike
• USD/JPY tests 100 SMA resistance

USD/JPY is inching higher for a third straight session as the US dollar remains supported after hotter-than-expected inflation data earlier in the week. Attention is turning to a US data drop later today, which could provide more insight into the timing of the first Fed rate cut.

US retail sales are expected to rise 0.8^% MoM, highlighting the resilience of the US consumer. PPI wholesale inflation is expected to hold steady at 0.3% MoM, and jobless claims are expected to remain roughly in line with the previous week at 218K.

Stronger-than-expected retail sales and hotter-than-expected inflation could raise questions about the likelihood of the Federal Reserve cutting interest rates three times this year and whether the US central bank will be able to start cutting in June, boosting the USD.

Despite sticky inflation, the market remains firm that a June rate cut is still on track, pricing in a 65% likelihood of a rate cut and an 83% likelihood of a rate cut in July.

Meanwhile, the yen is showing resilience as traders focus on whether the Bank of Japan will end negative interest rates next week. So far, it appears to be a close call.

The preliminary results of the spring wage negotiations are expected on Friday and there have already been indications that several of the of Japan’s largest companies have agreed to fully meet union demands for large pay increases. Japanese workers have so far secured the biggest pay rise in more than three decades, underlining the inflationary trend and boosting the case for the Bank of Japan to begin hiking rates.

USD/JPY forecast – technical analysis

After finding support and rebounding off the falling trendline support, USD/JPY is testing the resistance of the 100 SMA around 147.80. Byers will look for a rise above here and 148.80, the January high, to extend gains towards 150.90, the 2024 high.

Should the price face rejection at the 100 SMA, a re-test of 146.50, the March low, could be on the cards. This would expose the 200 SMA and falling trendline support at 146.30. Below here, sellers could gain traction towards 145.00

DAX rises to a new all-time high

• US data to drive sentiment
• ECB speakers support a June rate cut
• DAX rises to an all-time high

The DAX has edged cautiously higher, reaching a fresh all-time high, as the markets brace themselves for a series of US data, including producer prices, initial jobless claims, and retail sales, which could provide further clues about when the Federal Reserve will start cutting interest rates.

Attention will also be on ECB speakers, including Isabel Schnabel and Frank Elderson, and their comments will be watched closely for further confirmation that the ECB will cut rates in June. Their comments come after several ECB speakers in recent sessions have also pointed to a June cut. Optimism that major central banks are about to embark on a rate-cutting cycle has boosted market sentiment.

The DAX trades at 1.5% already in March after rising 4.5% in February. The index is on track for its fifth straight monthly gain.

DAX forecast – technical analysis

The DAX continues to trade in a rising channel has risen to a fresh all-time high. The RSI remains in very overbought conditions, so some consolidation or a pullback could be on the cards.

Buyers will look to fresh highs towards 18500 and 18000, the top of rising channel.

A short-term trend line from mid-February offers immediate support, as does 17600, the March low, and the 20 SMA.