DAX Set for a Bearish Open as Focus Shifts to the US Services Sector

It was a bullish end to a bullish week for the DAX. The DAX rose by 1.25%. Following a 1.21% gain on Thursday, the DAX ended the week up 0.42% to 16,051. Significantly, the DAX held onto the 16,000 handle for the first time since May 23.

The passing of the Debt Limit Suspension Bill and US economic indicators drove demand for riskier assets.

An unexpected rise in the US unemployment rate backed bets on a Fed pause in June to allow FOMC members to digest more economic indicators before considering further interest rate hikes.

However, the US Senate passing of the Debt Limit Suspension Bill was the key driver. Failure to pass the bill would have left the global financial markets facing turmoil on a Monday default.

Debt Limit Suspension Bill and US Economic Indicators Deliver Support

It was a quiet European economic calendar, with French industrial production numbers in focus. A larger-than-expected increase in industrial production failed to influence. German industrial production and manufacturing PMI numbers have continued to disappoint.

However, US economic indicators fueled bets of a Fed pause in June, supporting the appetite for riskier assets.

Average hourly earnings fell short of expectations, rising by 0.3% versus a forecasted 0.4% in May. Softer wage growth came despite another sharp increase in nonfarm payrolls, which surged by 339k versus 294k in April. Economists forecast a 180k rise. The unemployment rate unexpectedly rose from 3.4% to 3.7% despite the surge in hiring.

According to the CME FedWatch Tool, the probability of a June interest rate hike fell from 25.3% to 23.0% this morning. One week earlier, the chance of a 25-basis point hike stood at 64.2%.

The US Jobs Report failed to drive bets on a June interest rate hike, despite the surge in hiring.

The Market Movers

It was a bullish day for the auto sector. Continental and Porsche led the way, rallying 5.37% and 3.72%, respectively, with Volkswagen up 2.93%. Mercedes-Benz Group and BMW ended the day with gains of 2.38% and 2.57%, respectively.

It was also a bullish session for the banks. Commerzbank and Deutsche Bank ended the day up 1.20% and 2.97%, respectively.

The Day Ahead for the DAX

It is a busy day on the European economic calendar.

German trade data will draw interest ahead of services PMI numbers for Italy and Spain. Finalized services and composite PMIs for France, Germany, and the Eurozone will also need consideration.

Later in the day, euro area wholesale inflation numbers will also influence ahead of the US session.

Following the market-friendly US Jobs Report, US economic indicators will provide direction. The all-important ISM Non-Manufacturing PMI for May will be the main report of the day. Investors need to look beyond the headline figure, with employment, new orders, and price sub-components also likely to impact sentiment toward the Fed policy outlook.

Other stats include finalized S&P Global Composite and Services PMIs and factory orders. However, the stats should have a limited impact on market risk sentiment.

Beyond the economic indicators, investors need to track central bank chatter throughout the day. ECB President Christine Lagarde is on the calendar to speak today.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to avoid the 16,015 pivot to target the First Major Resistance Level (R1) at 16,107. A move through the Friday high of 16,071 would send a bullish signal. However, the DAX would need economic indicators and central bank chatter to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,163 and resistance at 16,200. The Third Major Resistance Level (R3) sits at 16,311.

A fall through the pivot would bring the First Major Support Level (S1) at 15,959 into play. However, barring a risk-off-fueled sell-off, the DAX should avoid the Second Major Support Level (S2) at 15,867. The Third Major Support Level (S3) sits at 15,719.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day EMA (15,934). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 (15,959) and the 50-day EMA (15,934) would support a breakout from R1 (16,107) to give the bulls a run at R2 (16,163). However, a fall through S1 (15,959) and the 50-day EMA (15,934) would bring S2 (15,867) and the 100-day EMA (15,863) into view. A fall through the 50-day EMA would send a bearish signal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was down 17 points, with the NASDAQ falling by 46.5. The Dow was up 16 points.

For a look at the economic events, check out our economic calendar.