DAX in the Hands of ECB President Lagarde and Chief Economist Lane

It was a bullish Tuesday session for the DAX, which rose by 1.75% to end the day at 15,195.

Bank stocks drew plenty of buying interest as investors responded further to government and regulator steps to contain the fallout from the collapse of Silicon Valley Bank (SIVB) and Signature Bank (SBNY).

Relief from the news of UBS AG (UBS) agreeing to acquire Credit Suisse Group AG (CS) continued to drive demand for European stocks.

A pickup in risk sentiment supported commodity stocks, with the FTSE 100 gaining 1.79%. The GBP/USD fell by 0.50% to end the day at $1.22161, with a weaker Pound also supporting the FTSE 100.

However, the Tuesday gains came despite a shift in focus to the Federal Reserve and today’s interest rate decision, FOMC Projections, and Fed Chair Powell’s press conference.

Economic Indicators Fail to Spook Investors

ZEW Economic Indicators failed to reverse early gains, despite a sharp decline in sentiment.

The German ZEW Economic Sentiment Index fell from 28.1 to 13.0, with the Eurozone Economic Sentiment Index sliding from 29.7 to 10.0. Economists forecast declines to 17.1 and 16.0, respectively.

Investors were forgiving, with the slide in the Sentiment Indexes reflecting angst over the contained banking crisis.

There were no US economic indicators from the US to influence, leaving the US equity markets to guide the DAX through to the market close.

The Market Movers

It was a bullish Tuesday for the auto sector. Continental led the way, rallying by 3.31%, with Volkswagen and Porsche seeing gains of 2.45% and 2.68%, respectively. Daimler and BMW ended the day up 1.94% and 1.81%, respectively.

Bank stocks had a particularly bullish session. Deutsche Bank rose by 6.05%, with Commerzbank ending the day up by 7.44%.

The Day Ahead for the DAX

It is a quiet day ahead on the economic calendar. There are no economic indicators from the euro area for investors to consider. With no economic indicators to influence, ECB member chatter and investor sentiment toward Fed monetary policy will provide direction today.

ECB President Lagarde and Chief Economist Philip Lane will be in the spotlight this afternoon. Hawkish chatter would test support for the DAX.

However, the Fed interest rate decision, FOMC Projections, and the Fed Chair Powell press conference will be the focal point. The markets expect a 25-basis point Fed rate hike, a post-March pause, and an H2 2023 rate cut.

Uncertainty lingers, with sticky inflation and US labor market conditions supporting an aggressive interest rate trajectory to bring inflation to target. A hawkish 25-basis point Fed rate hike would likely weigh on the DAX tomorrow.

DAX Technical Indicators

The DAX has to avoid the 15,168 pivot to target the First Major Resistance Level (R1) at 15,280. A move through the Tuesday high of 15,253 would signal a bullish session. However, the DAX would need ECB President Lagarde and Chief Economist Philip Lane to support a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $15,365. The Third Major Resistance Level (R3) sits at 15,562.

A fall through the pivot would bring the First Major Support Level (S1) at 15,083 into play. However, barring another flight to safety, the DAX should avoid sub-$15,000 and the Second Major Support Level (S2) at 14,971. The Third Major Support Level (S3) sits at 14,774.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits below the 100-day EMA (15,204). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA widening to the 200-day EMA, delivering bullish signals.

A DAX move through the 100-day EMA ($15,204) would support a breakout from R1 (15,280) to give the bulls a run at R2 (15,365). However, a fall through the 500-day EMA (15,190) would leave the Major Support Levels and the 200-day EMA ($14,972) in play. 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 54 points, with the NASDAQ mini gaining 7.25 points. The Dow mini was up 1 point.

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