DAX Hits Record Highs Amid Chinese Stimulus; GBP/USD Steady as Market Awaits Fed Chair Powell
The DAX Index has surged past the 19,000 mark, reaching new all-time highs, driven by renewed optimism from additional stimulus measures announced by China. The world's second-largest economy is set to implement significant fiscal spending to bolster its slowing growth, with reports indicating a potential injection of up to 1 trillion yuan into major state banks to enhance their lending capabilities.
This announcement follows the Chinese central bank's unveiling of its most substantial stimulus package since the pandemic, which has positively influenced global markets, including European indices like the DAX.
The DAX's upward momentum is further supported by the Federal Reserve's recent decision to cut interest rates, signaling the beginning of a rate-cutting cycle. Market analysts are currently pricing in a 62% likelihood of an additional 50 basis point cut at the Fed's upcoming meeting in November.
In Germany, consumer confidence has shown a slight improvement, with the GfK consumer confidence index rising from -21.9 in September to -21.2 in October. This marks the first positive shift in consumer sentiment since June, despite ongoing concerns about a potential recession, as indicated by a decline in the Ifo business climate and persistent contraction in PMI data.
As ECB President Christine Lagarde prepares to speak, her comments regarding the economic outlook could influence market sentiment. Investors are also keenly awaiting remarks from Federal Reserve Chair Jerome Powell, who is expected to provide insights into future monetary policy, alongside the release of US jobless claims data, which will shift focus to the US labor market.
With the DAX now above 19,000, technical indicators suggest further gains are possible, with the next targets set at 19,500 and the psychological level of 20,000, which also aligns with a rising trend line from June 2022. Immediate support is identified at 19,000, and a breach of this level could lead to a decline towards 18,200, the low from September.
Meanwhile, the GBP/USD currency pair has stabilized after experiencing weakness, as market sentiment favors the riskier pound over the safe-haven US dollar. Megan Greene from the Bank of England has cautioned against hastily reducing interest rates, echoing sentiments from BoE Governor Andrew Bailey earlier this week.
Despite the pound benefiting from the divergence between the BoE and the Fed, it may face challenges in gaining further ground as attention shifts to the upcoming UK budget and the Bank of England's interest rate decision.
UK Prime Minister Keir Starmer has indicated that the forthcoming budget will be challenging, raising concerns among traders about the potential impact of anticipated rate hikes on the economy. With a quiet economic calendar in the UK today, the US dollar's movements will likely dictate GBP/USD trends, influenced by overall market sentiment.
The US dollar has weakened following comments from Federal Reserve Governor Adriana Kugler, who expressed full support for a 50 basis point rate cut, emphasizing the need to focus on the US labor market. This comes ahead of a series of speeches from Federal Reserve officials, including Chair Jerome Powell and New York Fed President Williams, as the market anticipates dovish remarks that could bolster expectations for further rate cuts.
Attention will also be directed towards US jobless claims data, particularly as the focus shifts from inflation to employment. Any unexpected rise in jobless claims could exert additional downward pressure on the US dollar.
GBP/USD has been on an upward trajectory since late April, establishing a pattern of higher highs and higher lows. The pair encountered resistance at 1.34 and has since corrected lower. Buyers are aiming to push above this resistance level, potentially targeting 1.35. On the downside, support is identified at 1.3265, the August high, with further support at the psychological level of 1.31. A drop below 1.30 would signify a lower low, indicating a shift in market dynamics.