DAX Futures Signal a Bullish Open on Debt Ceiling Optimism

It was a bullish Thursday session for the DAX. Following a 0.34% gain on Wednesday, the DAX rallied 1.33% to end the day at 16,163. Significantly the DAX struck a new 2023 high of 16,230 and wrapped up the day at the 16,000 handle for the first time since January 2022.

There were no economic indicators from the euro area to distract investors, leaving debt ceiling updates to provide direction. Progress towards a debt ceiling deal delivered the bullish session. On Thursday, Speaker of the House Kevin McCarthy raised hope of a debt ceiling deal by the end of this week.

US economic indicators provided support, while hawkish central bank chatter may test sentiment once the debt ceiling dust settles.

On Thursday, the NASDAQ Composite Index rose by 1.51%, with the S&P 500 and the Dow seeing gains of 0.94% and 0.34%, respectively.

US Economic Indicators Ease Fears of a Hard Landing

There were no euro area economic indicators for investors to consider, leaving sentiment toward the US debt ceiling to influence ahead of the US session.

US economic indicators were bullish, delivering late support. The Philly Fed Manufacturing Index rose from -31.3 to -10.4 in May versus a forecasted -19.8. Significantly, new orders fell at a less marked pace, while the prices paid sub-component signaled renewed wholesale inflationary pressures.

However, labor market conditions remain robust, with initial jobless claims falling from 264k to 242k in the week ending May 12.

Fed chatter tested investor appetite, with FOMC member Lorie Logan suggesting the latest economic indicators do not support a pause on interest rate hikes.

The Market Movers

It was a bullish day for the auto sector. Porsche led the way, rallying 4.06%, with Volkswagen and Mercedes-Benz Group seeing gains of 3.24% and 3.10%, respectively. BMW and Continental ended the day up 2.36% and 2.41%, respectively.

It was also a bullish session for the banks. Commerzbank and Deutsche Bank gained 4.38% and 3.93%, respectively.

The Day Ahead for the DAX

German producer price numbers for April will be in focus this morning. With sticky inflation forcing the ECB to take a more hawkish outlook on monetary policy, hotter-than-expected wholesale inflation numbers could signal a summer interest rate hike.

Economists forecast the German Producer Price Index to increase by 4.0% year-over-year versus 6.7% in March.

After a week of mixed signals on the economic data front, investors should monitor ECB chatter throughout the day. ECB Executive Board members Isabel Schnabel and ECB President Christine Lagarde (pre-recorded) are on the calendar to speak today.

The ECB will also release the ECB Economic Bulletin, which will garner much interest following the EU Commission’s revisions to growth and inflation forecasts.

Looking ahead to the US session, it is a quiet day on the US economic calendar. There are no US economic indicators for investors to consider. The lack of stats will leave the DAX in the hands of market risk sentiment and, importantly, Fed chatter.

FOMC members Williams and Bowman will set the stage for Fed Chair Powell to wrap up the week. The Fed Chair has caught investors by surprise on numerous occasions. Sticky inflation and very tight labor market conditions could force Powell to discuss the possibility of a June interest rate hike.

Beyond the economic calendar, US debt ceiling-related news will move the dial.

DAX Technical Indicators

Resistance & Support Levels

The DAX has to avoid the 16,154 pivot to target the First Major Resistance Level (R1) at 16,239. A return to 16,200 would send a bullish signal. However, the DAX would need central bank chatter, the ECB Economic Bulletin, and US debt ceiling talks to support a breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at 16,315. The Third Major Resistance Level (R3) sits at 16,476.

A fall through the pivot would bring the First Major Support Level (S1) at 16,078 into play. However, barring a Fed-fueled sell-off, the DAX should avoid sub-15,990. The Second Major Support Level (S2) at 15,993 should limit the downside. The Third Major Support Level (S3) sits at 15,832.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,894). The 50-day EMA pulled further away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above the Major Support Levels and the 50-day EMA (15,894) would support a breakout from R1 (16,239) to give the bulls a run at R2 (16,315). However, a fall through S1 (16,078) would bring S2 (15,993) and the 50-day EMA (15,804) 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 up 84 points, with the NASDAQ mini up by 38. The Dow gained 27.

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