DAX in the Hands of German Retail Sales and US Inflation

It was a bullish Thursday for the DAX, which rose by 1.26% to end the day at 15,522.

Containment of the banking sector crisis and easing fears of another global financial crisis drove demand for riskier assets. However, economic indicators from the euro area were also market-friendly. Softening inflationary pressures eased bets of another hawkish ECB interest rate hike, with the ECB Economic Bulletin showing favorable inflation and economic growth forecasts.

There were no major shocks in the US session to spook investors, with the Dow Jones and the NASDAQ Composite Index providing support. On Thursday, the NASDAQ Composite Index rose by 0.73%, with the Dow Jones gaining 0.43%.

German Inflation Softens, Opening the Door to an ECB Pause

Euro area Business and Consumer Survey figures and German inflation numbers provided direction on Thursday.

The Business and Consumer Survey slipped from 99.6 to 99.3. Significantly, consumer inflation expectations rose from 17.7% to 18.9%. However, the German annual inflation rate softened from 8.7% to 7.4%, supporting bets of an ECB pause in April.

The ECB Economic Bulletin also drew interest, with the ECB noting that inflation was too high for too long.

Salient points from the ECB Economic Bulletin included,

• Headline inflation is expected to fall significantly during 2023, with falling energy prices and easing pipeline pressures a drag on inflation.
• ECB staff project inflation to soften from 10.0% in Q4 2022 to 2.8% in Q4 2023.
• While inflationary pressures are subsiding, the pace of wage growth remains elevated.
• ECB staff expect growth to slow to 1.0% in 2023 before expanding by 1.6% in 2024 and 2025. Staff revised growth upward by 0.5 percentage points for 2023 while downwardly revising growth by 0.3 percentage points for 2024.

US economic indicators provided little reason for the Fed to lift interest rates again. Initial jobless claims rose from 191k to 198k, with the US economy growing by 2.6% in Q4, down from 3.2% in Q3.

The Market Movers

It was a bullish Thursday for the auto sector. Continental led the way, surging by 3.60%, with Volkswagen and BMW seeing gains of 1.70% and 1.77%, respectively. Porsche rose by 1.41%, while Daimler saw a more modest 0.78% increase.

It was also a bullish session for the banks. Commerzbank gained 2.94%, with Deutsche Bank rising by 1.60%.

The Day Ahead for the DAX

It is a busier day ahead on the economic calendar.

German retail sales and unemployment numbers will be in focus before inflation numbers for the euro area. Following the softer inflation numbers for March, a pickup in retail sales and steady unemployment would support a bullish start to the session.

However, the prelim euro area CPI report for March will be the focal point. The markets expect inflation numbers to allow the ECB to join other central banks in hitting the pause button.

Economists forecast the annual inflation rate for the euro area to soften from 8.5% to 7.1%.

With inflation in focus, investors should also consider ECB member speeches. ECB President Christine Lagarde will speak today. Comments relating to inflation and ECB monetary policy will draw interest.

This afternoon, the US Core PCE Price Index and personal income/spending numbers will have the final say. An unexpected pickup in US inflationary pressure could test the ‘Pause Theory.’

DAX Technical Indicators

The DAX has to avoid the 15,494 pivot to target the First Major Resistance Level (R1) at 15,564. A move through the Thursday high of 15,536 would signal a bullish session. However, the DAX would need the ECB and economic indicators to support a pre-US breakout.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $15,605 and resistance at 15,650. The Third Major Resistance Level (R3) sits at 15,716.

A fall through the pivot would bring the First Major Support Level (S1) at 15,453 into play. However, barring a flight to safety, the DAX should avoid sub-$15,300. The Second Major Support Level (S2) at 15,383 should limit the downside. The Third Major Support Level (S3) sits at 15,272.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,214). After the Thursday bullish cross, 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 the Major Support Levels and the 50-day EMA (15,214) would support a breakout from R1 (15,564) to give the bulls a run at R2 (15,605) and 15,650. However, a risk-off event would deliver a fall through S1 (15,383) to bring S2 (15,383) into play. A fall through the 50-day (15,214) would signal a near-term bullish trend reversal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was up 34 points, with the NASDAQ mini up by 46. The Dow mini rose by 58 points.

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