DAX in the Hands of Private Sector PMIs and Central Bank Chatter

It was a bearish Thursday session for the DAX, which fell by 0.04% to end the day at 15,210.

There were no economic indicators from the euro area for investors to consider, leaving the markets to respond to the Fed interest rate hike, FOMC Projections, and Fed Chair Powell’s press conference.

The Fed lifted interest rates by 25 basis points on Wednesday, aligned with market expectations, and projected an unchanged peak Federal Funds Rate of 5.1%. However, concerns over the banking sector weighed on riskier assets. The Fed Chair warned of an imminent credit crunch that could materially affect the macroeconomic environment.

US Treasury Secretary Janet Yellen attempted to calm investor jitters on Thursday but to no avail. Speaking at the House of Representatives Appropriations subcommittee hearing, the former Fed Chair reportedly said,

“The strong actions we have taken to ensure that Americans’ deposits are safe. Certainly, we would be prepared to take additional actions if warranted.”

While bank stocks pared some losses, the banking sector ended the day in the deep red. Morgan Stanley (MS) fell by 1.95%, with Bank of America (BAC) sliding by 2.42%.

A Quiet Economic Calendar Left the DAX Flat Ahead of the Fed

There were no economic indicators from the euro area to distract investors from banking sector jitters and the threat of a credit crunch hitting the global economy.

Late in the US session, US jobless claims kept the pressure on riskier assets. While Fed Chair Powell intimated at a near-term pause on lifting rates, tighter labor market conditions and sticky inflation would keep the Fed under pressure to deliver more to bring inflation to target.

The Market Movers

It was a mixed Thursday for the auto sector. Volkswagen and Porsche slid by 1.15% and 1.29%, respectively. Continental and Daimler also saw red, falling by 0.72% and 0.63%, respectively, while BMW bucked the trend, rising by 0.64%.

However, bank stocks hit reversed on renewed banking sector jitters. Commerzbank and Deutsche Bank slid by 4.14% and 3.18%, respectively.

The Day Ahead for the DAX

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

While the headline numbers will provide direction, inflation, employment, and new order sub-components will likely garner more interest. With the ECB committed to bringing inflation to target, a pickup in inflationary pressure would support a more hawkish stance on monetary policy, a bearish scenario for the DAX.

ECB President Christine Lagarde will speak today, with the focus likely to be on the banking sector.

Later in the session, US economic indicators and Fed commentary will influence market risk sentiment. We expect the US Services PMI and FOMC member James Bullard to move the dial.

Away from the economic calendar, investors should continue monitoring the banking sector and credit-crunch-related news.

DAX Technical Indicators

The DAX has to avoid the 15,178 pivot to target the First Major Resistance Level (R1) at 15,276. A move through the Thursday high of 15,244 would signal a bullish session. However, the DAX would need the ECB, the Fed, and the PMIs to support a bullish session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $15,343. The Third Major Resistance Level (R3) sits at 15,508.

A fall through the pivot would bring the First Major Support Level (S1) at 15,111 into play. However, barring a flight to safety, the DAX should avoid sub-$15,000. The Second Major Support Level (S2) at 15,013 should limit the downside. The Third Major Support Level (S3) sits at 14,848.

Looking at the EMAs and the 4-hourly chart, the EMAs send bullish signals. The DAX sits above the 100-day EMA (15,206). 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 hold above the 100-day EMA ($15,206) would support a breakout from R1 (15,276) to give the bulls a run at R2 (15,343). However, a fall through the 100-day EMA (15,206) and the 50-day EMA (15,196) would give the bears a run at S1 (15,111). A fall through the 50-day EMA would send a bearish signal.

The DAX Futures Sees Red

Looking at the futures markets, DAX was down 66 points, while the NASDAQ mini was up by 29.75. The Dow mini rose by 62 points.

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