DAX Bulls Eye a New ATH on China Stimulus and Eurozone CPI Numbers

Highlights

• It was a bullish Friday for the DAX, gaining 0.39% to end the day at 16,470.
• Softer German and US inflation numbers supported the appetite for riskier assets.
• It is a busy start to the week. NBS private sector PMIs from China will set the tone ahead of German retail sales, Eurozone inflation, and GDP numbers.

It was a bullish end to a bullish week for the DAX, which gained 0.39%. Following a 1.70% rally on Thursday, the DAX ended the week up 1.81% to 16,470. Significantly, the DAX struck a new high of 16,490.

Economic indicators from the German and the US drove demand for riskier assets. Significantly, the economic indicators eased bets on further ECB and Fed interest rate hikes in September.

However, GDP numbers from Germany left the DAX trailing the US equity markets on Friday. The NASDAQ Composite Index rallied by 1.90%, with the Dow and the S&P 500 seeing gains of 0.50% and 0.99%, respectively.

Economic Indicators Deliver DAX Support

It was a busy Friday session on the economic calendar. German GDP and inflation numbers drew interest before the US opening bell.

The German annual inflation rate softened from 6.4% to 6.2% in July, easing bets on a September ECB rate hike. GDP numbers disappointed also supported bets on an ECB pause. The German economy stalled in the second quarter after contracting by 0.1% in the third quarter. Economists forecast the economy to expand by 0.1%.

US economic indicators also supported the demand for riskier assets. The US Core PCE Price Index increased by 4.1% year-over-year in June versus 4.6% in May. Economists forecast an increase of 4.2%. After the hotter-than-expected GDP numbers, the Friday stats further eased bets on a September Fed rate hike, supporting the soft-landing theory.

The Market Movers

It was a mixed session for the auto sector. BMW and Mercedes-Benz Group rallied by 1.20% and 1.16%, respectively, with Volkswagen gaining 0.26%. However, Porsche and Continental AG bucked the trend, falling by 0.11% and 0.52%, respectively.

It was another bearish session for the banks. Commerzbank and Deutsche Bank ended the day with losses of 0.51% and 0.84%, respectively.

BASF led the way, gaining 3.10% on spending cut news.

The Day Ahead for the DAX

It is a busy day on the European economic calendar. German retail sales will draw interest early in the session. Weak numbers would fuel recessionary jitters. Economists forecast retail sales to decline by 0.5% in June.

However, Eurozone inflation and GDP numbers will likely have more impact. While investors are looking for reasons for the ECB to hit the pause button, weak GDP numbers could test buyer appetite.

There are no economic indicators from the US to move the dial later in the day.

However, NBS private sector PMI numbers from China set the tone. Hopes of stimulus from Beijing offset the impact of bearish numbers. The NBS Manufacturing PMI rose from 49.0 to 49.3, while the Non-Manufacturing PMI fell from 53.2 to 51.5.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bullish signals. The DAX sat above the 50-day (16,141) and 200-day (15,938) EMAs, signaling bullish momentum over the near and longer term.

Significantly, the 50-day EMA pulled further away from the 200-day EMA, sending bullish price signals and supporting a continued breakout from the 16,310 – 16,360 resistance band.

A DAX move through the Friday all-time high of 16,490 would support a breakout from 16,500. However, euro area indicators must be DAX-friendly for a DAX move through 16,500.

A fall through the upper level of the 16,360 – 16,310 resistance band would sub-16,300 into play. However, the DAX should avoid the 50-day EMA (16,141) and the 16,080 – 16,000 support band.

The 14-4H RSI sits at 73.36, signaling the DAX sitting in overbought territory, with buying pressure overweighing selling pressure. However, the RSI aligns with the EMAs, supporting a breakout from 16,500.

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