DAX, Oil Forecast: Two trades to watch 271026

DAX struggles as optimism fades ahead of ECB rate decision this week

After rising over 1% on Monday, that optimism is showing signs of fading on Tuesday, with the DAX, along with its European peers, trading under pressure. The mood remains cautious ahead of mega-cap tech earnings later this week and rate decisions from the ECB and the Federal Reserve.

Yesterday, the market improved following Anthropic's IPO filing, which aided the recovery in tech stocks.

However, the recovery was short-lived, and investors are finding few reasons to extend yesterday's rebound.

The Anthropic filing underscored the AI startup's ambitious plans for growth, but it also highlighted the steep costs associated with developing and scaling up advanced AI models. The company recorded a net loss in H1 of $80.7 billion, while revenue stood at $16.3 billion.

The plans for a public listing come amid heightened scrutiny of AI-related stocks, as the market increasingly questions whether debt-fuelled spending in the sector will generate adequate returns.

With a quiet economic calendar, attention will remain on corporate earnings.

Markets are also watching rising oil prices, with Brent futures trading close to their highest level since April and WTI above $100 a barrel. This adds to inflationary pressures ahead of Thursday's ECB rate decision.

The ECB is expected to leave interest rates on hold at 2.5%, having hiked rates twice already in recent months. Inflation in the region is at 3.8%, but wage pressures remain subdued, suggesting it is not yet spreading into wider areas of the economy. That said, the ECB is expected to hike rates in December. A hawkish hold could put stocks under pressure.

DAX forecast – technical analysis

The DAX found support at the 200 EMA and broke out of the falling channel. However, that breakout faced rejection around the 25,700 level, and the index has eased back to 25,400 at the time of writing, caught between the 50 EMA on the upside and the 200 EMA on the downside. The RSI is neutral, reinforcing the holding pattern. This setup lends itself to a breakout trade.

Buyers would need to retake the 50 EMA at 25,500 and rise above 25,675 to create a higher high, break out and turn attention to 26,000.

On the downside, sellers will need to take out the psychological 25,000 support level. A break below here could see sellers gain traction towards 24,660, horizontal support from the July low. From here, attention turns to 24,000, the June low.

Oil recovers earlier losses as Middle East supply concerns offset diplomacy hopes

Oil prices are rising on Tuesday, recovering from a 1% decline earlier in the session, as investors weigh up the prospect of diplomatic progress in the Middle East against renewed Houthi attacks on Saudi Arabia.

Saudi Arabia, Turkey and Pakistan held talks in Tehran at the start of the week, helping to calm tensions in the Middle East and raising optimism about diplomatic progress towards a peaceful solution. Hopes of a breakthrough between the U.S. and Iran helped remove some of the risk premium yesterday.

However, risks remain amid renewed attacks by Iran-aligned Houthis on Saudi Arabia.

Furthermore, October has been one of the worst months for attacks on commercial shipping in the key Strait of Hormuz. As a result, Brent rose to over $117 a barrel last week, its highest level since April. Gulf crude exports fell for a fourth straight week, and flows through the Strait of Hormuz were just 60% of their normal level, according to ANZ research.

While supply remains constricted, oil prices will remain supported and could continue to climb. Oil markets will want to see more signs of diplomatic progress and increased flows through the Strait for prices to move more sustainably lower.

Rising oil prices add to inflationary pressures ahead of a key week for central banks. While the Fed, the ECB and the Bank of Japan are expected to leave rates unchanged, the Bank of Canada and the RBNZ could hike rates owing to the inflationary pressures caused by elevated oil prices.

Oil forecast – technical analysis

Oil trades within an ascending channel dating back to early July. The price recently recovered from the lower band of the channel around $88, rebounding above $100 before hitting resistance around $104, the midpoint of the channel and the 23.6% Fibonacci retracement of the move from $55 to $120. The RSI supports further upside while it remains out of overbought territory.

Buyers will look to extend gains above $104 and $106.75, the September high, to create a higher high and turn attention to $110.

Immediate support is at $100, with a break below here opening the door to $95. The 38.2% Fibonacci retracement just below here, at $93, comes into focus, alongside the 50 EMA and the lower band of the rising channel. A break below $88 is needed to change the chart structure to a more bearish one.