DAX falls as Middle East tensions and tariff fears cloud the outlook. USD/JPY rises as oil and yields support the dollar.DAX Falls as Middle East Tensions and Tariff Fears Cloud OutlookThe DAX has opened lower on Wednesday as rising geopolitical uncertainty and the return of President Trump’s trade tariff rhetoric weigh on sentiment.Reports of renewed hostilities between the U.S. and Iran have raised concerns over the fragile ceasefire, pushing oil prices higher and reviving inflation worries. The rise in crude prices is particularly problematic for Europe, which remains heavily dependent on imported energy and is already facing weak economic growth.Energy-sensitive airlines are under pressure, with Lufthansa down 1%. Banks are also weaker, with Deutsche Bank and Commerzbank falling 2.8% and 1.1%, respectively, as investors reassess the outlook for growth and interest rates.At the same time, the Trump administration has proposed additional tariffs of 10% to 12.5% on imports from 60 economies, including the EU, threatening to reopen a trade dispute that many investors had assumed was largely behind us. Export-focused sectors are particularly vulnerable, with automakers such as BMW and Volkswagen trading around 2% lower.On the data front, German private sector activity contracted in May, highlighting the fragile state of Europe’s largest economy. The services PMI fell to 48.1 as higher energy costs and weaker demand weighed on activity. The data come after manufacturing PMI slowed to 50.1 from 51.4 previously.As a result, the composite PMI, which is widely viewed as a good gauge of overall business activity, remained in contraction territory at 48.8.The timing is awkward for the ECB. Eurozone inflation has remained above the central bank’s 2% target for a third straight month, leaving policymakers under pressure to tighten policy further. However, with growth already struggling and energy prices rising again, higher interest rates risk exacerbating the slowdown.In other words, the ECB increasingly finds itself caught between persistent inflation and weakening growth, a backdrop that could limit upside for European equities.DAX Forecast – Technical AnalysisThe DAX extended its recovery from the 22,800 low to a high of 25,440 before easing back towards rising trendline support around 24,900, an important pivot level.A break below this support could expose 24,650 and then 24,400. Below here, attention turns to the 200 SMA at 24,170.Should dip buyers emerge, the focus returns to 25,400, the May high. A move above this level would bring 25,500 and fresh record highs into view.USD/JPY Rises as Oil and Yields Support the DollarUSD/JPY has climbed to 160 as persistent dollar strength combines with renewed weakness in the yen, while traders remain alert to the possibility of intervention from Tokyo.Renewed hostilities in the Middle East have complicated efforts to secure a broader peace agreement between the U.S. and Iran. Reports that Iran launched missiles towards regional targets and that U.S. forces conducted strikes on Kish Island have reinforced concerns that tensions could remain elevated for some time.The implications are particularly important for Japan. Higher oil prices worsen Japan’s terms of trade because the country imports the vast majority of its energy requirements. Rising energy costs also increase inflationary pressures while weighing on household spending and corporate margins.At the same time, the U.S. dollar continues to draw support from strong economic data. JOLTS job openings rose to 7.62 million, well above the 6.88 million expected and the highest reading in two years.The data suggest labour demand remains resilient despite higher interest rates, supporting the view that the Federal Reserve may need to keep policy restrictive for longer.Attention now turns to the ISM Services PMI, which is expected to edge up to 53.8 from 53.6. Another strong reading would reinforce the narrative of a resilient U.S. economy and could provide further support for the dollar.Meanwhile, the yen has weakened back to the closely watched 160 level, where Japanese authorities have previously intervened.Finance Minister Satsuki Katayama reiterated that the government remains prepared to act if currency moves become excessive. However, the fact that the yen has returned to intervention territory despite Tokyo spending ¥1.7 trillion on currency operations between April 28 and May 27 highlights the strength of the underlying forces driving the move.The widening gap between U.S. and Japanese interest rates remains the dominant factor. Unless that gap narrows meaningfully, intervention alone may struggle to deliver a lasting recovery in the yen.At the same time, renewed yen weakness is increasing expectations that the Bank of Japan could raise rates later this month as policymakers attempt to contain imported inflation and stabilise the currency.USD/JPY Forecast – Technical AnalysisUSD/JPY continues to trade above its long-term rising trendline as well as the 50 and 200 SMAs. The pair has recovered strongly from the May low near 155 and is now testing the key psychological 160 level.The RSI remains above 50, supporting further upside.Buyers will look for a break above 160 to target 160.70, the 2026 high. Above here, 162.00, the 2024 high, comes into focus.Immediate support can be seen at the 50 SMA around 158.90. A break below this level opens the door to 158.00 and then 157.00, where rising trendline support comes into play.A move below 156.00 and the 200 SMA around 155.00 would suggest sellers are beginning to regain control.Original Post