DAX in the Hands of ZEW Economic Sentiment Numbers and the Fed

Highlights

• It was a bullish start to the week for the DAX. On Monday, the DAX gained 0.45% to end the day at 15,673.
• China inflation figures sent more gloomy signals before dip buyers jumped in following last week’s pullback.
• It is a busier Tuesday session, with economic sentiment numbers from Germany in focus ahead of Fed chatter.

It was a bullish Monday session for the DAX, which gained 0.45%. Following a 0.48% rise on Friday, the DAX ended the day at 15,673. Significantly, the DAX fell short of the 16,000 handle for the fourth consecutive session.

It was a busy start to the day, with economic indicators from China setting the tone.

China registered zero inflation, with consumer prices falling by 0.2% in June. Economists forecast consumer prices to remain unchanged and for the annual inflation rate to hold steady at 0.2%.

Significantly, the Producer Price Index garnered more interest as investors fret over the economic outlook. In June, the PPI declined by 5.4% year-over-year versus a 4.6% decline in May. Economists forecast a 5.0% decline, signaling a deteriorating demand environment.

However, updates on the US Treasury Secretary Janet Yellen visit to Beijing were bullish. Yellen reportedly said that 10 hours of meetings were direct and productive.

Late in the session, Fed commentary provided support. The NASDAQ Composite Index responded to the Fed comments, gaining 0.18%, with the Dow and the S&P 500 rising by 0.62% and 0.24%, respectively.

A Quiet Economic Calendar Left Fed Chatter in Focus

It was a quiet start to the week, with no euro area or US economic indicators to influence, leaving the Fed to influence.

FOMC members Barr, Bostic, and Daly signaled the near-term end to the Fed monetary policy tightening cycle.

FOMC Member Mary Daly reportedly favored two further rate hikes this year but added,

“While the risks of doing too little are still greater than those of overdoing it on rate hikes, the two sides are getting into better balance as the Fed nears the last part of its hiking cycle.”

FOMC member Michael Barr noted that he thinks the Fed is close, with Raphael Bostic erring on the side of patience.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 92.4% versus 93.0% on Friday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 23.1%, down from 24.2% on Friday.

The Market Movers

It was a mixed Monday session for the auto sector. BMW gained by 0.32% to buck the trend. However, Porsche and Continental AG saw losses of 0.34% and 1.17%, respectively. Mercedes-Benz Group and Volkswagen also saw red, falling by 0.06% and 0.26%, respectively.

It was a bullish session for the banks. Commerzbank and Deutsche Bank ended the day up 1.89% and 1.62%, respectively.

The Day Ahead for the DAX

It is a busier day on the European economic calendar.

Finalized German inflation numbers and ZEW Economic Sentiment will move the dial. Economists forecast the German ZEW Economic Sentiment to fall from -8.5 to -10.5 and the Eurozone ZEW Economic Sentiment Indicator to fall from -10 to -17.

Barring revisions to the German CPI numbers, the German ZEW Economic Sentiment will likely have more impact.

With the economic calendar on the busy side, ECB commentary will also need consideration. However, no ECB members are on the calendar to speak, leaving chatter with the media to move the dial.

It is another quiet day on the US economic calendar, with no US economic indicators to provide direction. The quiet economic calendar will leave FOMC member commentary in focus, with FOMC member Bullard on the calendar to speak today.

DAX Technical Indicators

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The DAX sat below the 50-day (15,897) and 200-day (15,826) EMAs, signaling bearish momentum over the near and longer term. Significantly, the 50-day EMA closed in on the 200-day EMA, sending bearish signals and bringing the upper level of the 15,280 – 15,255 support band into view.

However, a DAX move through the lower level of the 15,785 – 15,845 resistance band would bring the 200-day EMA (15,826) and the upper level of the resistance band into play. German economic indicators and central bank chatter should support a bullish session.

Failure to move through the lower level of the 15,785 – 15,845 resistance band would leave the upper level of the 15,280 – 15,235 support band in view.

The 14-4H RSI sits at 37.53, sending bearish signals and supporting a further pullback to target the upper level of the 15,280 – 15,235 support range.

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