USD/JPY, DAX Forecast: Two trades to watch

USD/JPY falls post-CPI & with jobless claims up next

• US CPI & retail sales fall raising rate cut expectations
• Japan's Q1 GDP -0.5% QoQ vs 0% in Q4 2023
• USD/JPY falls below 155.00

USD JPY is falling for a second straight session after the cooler-than-expected US CPI and retail sales reports and despite weaker than expected Japanese GDP figures.

US CPI eased by more than forecast, and retail sales were softer than expected, ramping up hope that inflation will cool further in the coming months. The data has raised expectations that the Federal Reserve will start cutting interest rates.

Traders are fully pricing into 25 basis point rate cuts in 2024, with a 75% probability of at least a 25 basis point rate cut by the September meeting.

The attention will remain on the US economic calendar with housing starts, building permits, jobless claims, and industrial production data due.

Meanwhile, gains in the Japanese yen could be limited following a deeper-than-expected contraction in the economy in Q1 as consumer spending stalled. Japanese GDP shrunk by -0.5% QoQ after a flat performance at the end of last year.

Weak growth raises questions about the Bank of Japan's ability to hike interest rates further after raising them for the first time in 17 years in March.

USD/JPY forecast – technical analysis

After running into resistance at 156.80, USD/JPY fell aggressively below 155.00, to a low of 153.60. Sellers will look to take out this level to extend losses towards 152.00, the March high.

Meanwhile, buyers will need to rise above 155.00 to stage any sort of recovery. Above here 156.80 the weekly high and rising trendline support comes back into focus.

DAX reaches record high as US CPI euphoria spreads to Europe

• US CPI cooled, boosting risk sentiment globally
• US jobless claims data in focus
• DAX reaches record high before easing lower

Signs that US inflation is cooling are boosting global risk sentiment, helping stocks in Europe push higher.

The DAX has risen to a fresh all-time high, tracking gains in the US stock markets. The NASDAQ 100 and the S&P 500 reached record levels following cooler inflation and weaker retail sales which fueled Fed rate cut expectations.

The DAX is also being lifted by optimism that the eurozone economy is starting to recover and amid expectations that the ECB will start cutting rates in June.

Today, the eurozone economic calendar is quiet. The focal point will be on US jobless claims for further evidence that the labour market is cooling. Jobless claims don’t usually attract much attention, but last week, a surprisingly weak reading following the softer nonfarm payroll report raised expectations that the Federal Reserve could start to cut interest rates sooner. Another weak reading of jobless claims could further fuel those expectations.

DAX forecast – technical analysis

DAX has recovered from the May low of 17850, taking out several key resistance levels and the rising trendline resistance as it heads to fresh all-time highs on its way towards 19000.

Support can be seen at 18620, the weekly low and the April high. A break below here negates the near-term uptrend, bringing 18200, the late April.