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DAX in the Hands of Prelim PMIs and US Debt Ceiling Talks

By:
Bob Mason
Updated: May 23, 2023, 06:10 UTC

It is a busy day for the DAX, with private sector PMIs, central bank chatter, and the US debt crisis in focus. The DAX is set for a bullish open.

DAX set for a bullish open - FX Empire

It was a bearish start to the week for the DAX. The DAX fell by 0.32% on Monday. Partially reversing a 0.69% gain from Friday, the DAX ended the day at 16,224. Despite the bearish session, the DAX held onto the 16,000 handle for the third consecutive session.

Investor caution toward the US debt ceiling crisis weighed on risk sentiment. There were no economic indicators from the euro area or the US to influence at the start of the week.

On Monday, the NASDAQ Composite Index and the S&P 500 saw gains of 0.50% and 0.02%, respectively, while the Dow fell by 0.42%.

Eurozone Consumer Confidence Holds Steady

According to prelim figures, the Eurozone Consumer Confidence Index rose from -17.5 to -17.4 in May. The modest increase had a limited impact on the DAX.

While the Index remained well above the September 2022 low of -28.7, euro area consumer sentiment remains negative, with inflation, economic uncertainty, and the upward trend in interest rates weighing.

However, a quiet US economic calendar left a lack of progress toward a US debt ceiling deal to weigh on the DAX.

The Market Movers

It was a mixed day for the auto sector. Porsche led the way, gaining 1.64%, with BMW up 0.64%. Volkswagen and Mercedes-Benz Group rose by 0.27% and 0.31%, respectively, while Continental ended the day with a 1.58% loss.

It was a bullish session for the banks. Commerzbank and Deutsche Bank ended the day with gains of 2.37% and 0.87%, respectively.

The Day Ahead for the DAX

It is a busy day on the European economic calendar. Prelim private sector PMIs from France, Germany, and the Eurozone will be in focus.

While the German manufacturing sector PMI will likely garner more interest, service sector activity should support the bullish economic outlook.

However, investors should consider the sub-components, with employment, prices, and new orders likely focal points. The ECB remains resolute in bringing inflation to target. Steady labor market conditions and a pickup in input and output cost pressures would keep the ECB under pressure.

In contrast, softer cost pressures and weaker PMIs would fuel recessionary jitters.

While it is a busy Tuesday session, investors should monitor ECB chatter today. ECB Executive Board members Luis de Guindos and Andrea Enria are on the calendar to speak today.

Looking ahead to the US session, it is a busy day on the US economic calendar. Prelim US private sector PMI numbers for May will provide direction. While the headline figures will influence, investors should consider the sub-components. We expect the employment, pricing, and new order components to have the most impact.

However, Fed commentary and debt ceiling-related news will need consideration. Overnight, US President Joe Biden and Speaker of the House Kevin McCarthy failed to reach an agreement.

DAX Technical Indicators

Resistance & Support Levels

R1 16,337 S1 16,209
R2 16,398 S2 16,142
R3 16,526 S3 16,014

The DAX has to move through the 16,229 pivot to target the First Major Resistance Level (R1) at 16,263 and the Monday high of 16,268. A return to 16,250 would send a bullish signal. However, the DAX would need the PMIs and 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 16,301. The Third Major Resistance Level (R3) sits at 16,373.

Failure to move through the pivot would leave the First Major Support Level (S1) at 16,191 in play. However, barring a risk-off-fueled sell-off, the DAX should avoid the Second Major Support Level (S2) at 16,157. The Third Major Support Level (S3) sits at 16,085.

DAX support levels in play below the pivot.
DAX 230523 Hourly Chart

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 50-day EMA (15,971). 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 (15,971) would support a breakout from R1 (16,263) to give the bulls a run at R2 (16,301). However, a fall through S1 (16,191) would bring S2 (16,157) into view. A fall through S3 (16,085) and the 50-day EMA (15,971) would signal a near-term bullish trend reversal.

EMAs are bullish.
DAX 230523 4 Hourly Chart

The DAX Futures Sees Green

Looking at the futures markets, DAX was up 6 points, with the NASDAQ mini up by 33.25. The Dow gained 55.

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

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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