Two trades to watch: DAX, EUR/GBP

DAX declines as the market mood sours and German retail sales disappoint. EURGBP is on the rise ahead of EZ CPI, & EZ, UK manufacturing PMIs.

DAX declines as market mood sours, German retail sales disappoint

The DAX along with other European indices are set for strong declines on the open, following on from a heavy selloff on Wall Street. Risk sentiment soured amid growing concerns that inflation could remain stubbornly high even as global growth slows.

Yesterday data revealed that German inflation rose to a 29 year high of 4.1%

German retail sales rebound but by less than expected. Sales rose 1.1% MoM in August, after crashing -5.1% in July. On an annual basis sales rose 0.4% in August, up from -0.3% in July but still well short of the 1.9% forecast.

German manufacturing PMI data is due and is expected to reveal a cooling in activity growth to 58.5 in September, down from 62.6.

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Where next for the Dax?

The DAX is extending declines after being rejected at the falling trendline resistance earlier in the week. The RSI is pointing to further downside whilst it remains out of overbought territory.

Immediate support can be seen at 15030 the 200 sma and the September low. A break below here could open the door to 14800 the May low and 14650 the May low.

Any recovery would need to retake 15470 yesterday’s high before aiming for 15670 the confluence of the 50 sma and the descending trendline line resistance. It would take a move above this level to negate the near term down trend.

DAX chart

EUR/GBP looks to inflation data

The Pound’s strength from the previous session following a Q2 GDP upward revision, was short lived. Concerns over supply chain bottlenecks, labour shortages, and empty petrol stations continue to weigh on the Pound.

The Euro is pushing higher despite weaker than forecast German retail sales, supported by the prospect of the ECB acting sooner rather than later to taper support after German inflation hit a 29 year high.

Eurozone inflation is expected to rise to 3.3%, up from 3%, core CPI is expected to rise to 1.9%, up from 1.6%.

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Where next for EUR/GBP?

EURGBP extended its rebound off the rising trendline support, running into resistance at the 200 sma before easing lower.

The bullish MACD keeps bulls hopeful of a move above horizontal support at 0.8612 to expose the 200 sma at 0.8640.

It would take a move below the 50 sma at 0.8550 to negate the near term up trend and a move below 0.85 the September low for sellers to gain traction.

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