DAX in the Hands of Ifo Business Sentiment Numbers and the ECB

It was a bearish end to a bearish week for the DAX, which fell by 1.66% on Friday to end the week at 14,957.

Banking sector jitters resurfaced on Friday, with investors shifting their attention from Credit Suisse Group (CS) to Deutsche Bank (DB). Fears of another European bank on the brink of collapse left DB down 8.53% for the day.

Economic indicators added to the bearish mood, with the German manufacturing sector contracting at a more marked rate in March.

The sell-off came despite assurances from the German government that Deutsche Bank remains well-capitalized and profitable. Deutsche Bank hit reverse in response to a spike in credit default swaps (CDS), the cost of insuring against the risk of default.

The spike in credit default swaps showed that the fallout from the collapse of Silicon Valley Bank and Signature bank has yet to wash out, with other European banks likely to face similar investor scrutiny.

Private Sector PMIs Provide Little Comfort

It was a busy Friday on the European economic calendar, with prelim March private sector PMIs in the spotlight.

It was a mixed bag, with German service sector activity picking up while Germany’s manufacturing sector contracted at a more marked rate.

According to prelim figures, the German Manufacturing PMI fell from 46.3 to 44.4, while the Services PMI increased from 50.9 to 53.9. Economists forecasted PMIs of 47.0 and 51.0, respectively.

There was a similar trend across the euro area. The Eurozone Manufacturing PMI declined from 48.5 to 47.1, while the Services PMI jumped from 52.7 to 55.6.

Economic indicators from the US failed to reverse losses from the morning session despite service sector activity accelerating in March.

According to prelim figures, the US Services PMI rose from 50.6 to 53.8, with the Manufacturing PMI increasing from 47.3 to 49.3. The Composite PMI jumped from 50.1 to 53.3 versus a forecasted fall to 47.5.

FOMC Member James Bullard reportedly stood by the Fed’s decision to lift rates, saying that inflation remained too high, adding,

“Appropriate monetary policy can continue to put downward pressure on inflation.”

Significantly, Bullard referenced the banking crisis, saying,

“Financial stress can be harrowing but also tends to reduce the level of interest rates. Lower rates, in turn, tend to be a bullish factor for the macro economy.”

The Market Movers

It was a bearish Friday for the auto sector, with fears of a liquidity crunch and manufacturing PMI numbers weighing. Continental led the way down, with a 3.80% loss, with Volkswagen and Porsche sliding by 2.76% and 2.27%, respectively. Daimler and BMW saw relatively modest losses of 1.08% and 1.51%, respectively.

Bank stocks struggled for a second consecutive session. Commerzbank and Deutsche Bank tumbled by 5.45% and 8.53%, respectively.

The Day Ahead for the DAX

It is a relatively day ahead on the economic calendar. German Ifo Business Climate Index figures for March will be in focus.

Economists forecast the headline Ifo Business Climate Index to fall from 91.1 to 91.0.

With German business sentiment and the banking sector in the spotlight, ECB member chatter will also move the dial. Executive Board members Frank Elderson and Isabel Schnabel speak today.

DAX Technical Indicators

The DAX has to move through the 14,968 pivot to target the First Major Resistance Level (R1) at 15,125 and the Friday high of $15,136. A return to 15,000 would signal a bullish session. However, the DAX would need the ECB and the Ifo Business Climate Index numbers to support a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $15,294. The Third Major Resistance Level (R3) sits at 15,620.

Failure to move through the pivot would leave the First Major Support Level (S1) at 14,799 in play. However, barring another flight to safety, the DAX should avoid sub-$14,700 and the Second Major Support Level (S2) at 14,642. The Third Major Support Level (S3) sits at 14,316.

Looking at the EMAs and the 4-hourly chart, the EMAs send bearish signals. The DAX sits below the 200-day EMA (14,985). The 50-day EMA closed in on the 200-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 200-day EMA ($14,985) would support a breakout from R1 (15,125) to give the bulls a run at the 50-day (15,165) and 100-day ($15,189) EMAs. However, failure to move through the 200-day EMA (14,985) would leave the Major Support Levels in play. A move through the 50-day EMA would send a bullish signal.

The DAX Futures Sees Green

Looking at the futures markets, DAX was up 158 points, while the NASDAQ mini rising by 59.25. The Dow mini rose by 148 points.

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