DAX Index: ECB Rhetoric and Upcoming Fed Decisions Weigh on DAX 30

Highlights

• DAX faltered by 1.05%, negating the prior 0.56% gain, settling Monday at 15,727.
• FOMC’s shadow looms over DAX.
• Upcoming FOMC decisions: potent threat to DAX; eyes on revised growth and inflation projections.

DAX Monday Overview

On Monday, the DAX slid by 1.05%. Reversing a 0.56% gain from Friday, the DAX ended the day at 15,727.

Central Bankers Instill Pre-Fed Dread

Hawkish ECB commentary weighed on the DAX and the broader European equity markets. Despite hints of the ECB hitting the brakes after the Thursday rate hike, investors remained sensitive to ECB chatter.

Governor of National Bank of Slovakia Peter Kazimir drew interest on Monday, reportedly saying the ECB may need until March to ascertain whether more rate hikes are necessary. However, ECB Executive Board member Luis de Guindos failed to cushion the downside. De Guindos reportedly said,

“Underlying inflation’s worst moment has passed and it should moderate.”

There were no economic indicators from China or the euro area to influence investor sentiment. The markets remain sensitive to hawkish central bank comments, with the Fed in the spotlight on Wednesday.

Fears of an upward revision to the FOMC economic projections for growth and inflation tested buyer appetite. Upbeat revisions to GDP, inflation, and unemployment would support a November Fed rate hike. Significantly, upbeat revisions would also ease the prospects of a 2024 Fed rate cut.

US equities struggled to break out on Monday. The Dow rose by 0.02%, with the S&P 500 and NASDAQ Composite Index seeing gains of 0.01% and 0.07%, respectively.

The Monday Market Movers

Tech stocks struggled, with Infineon Technologies and Siemens Energy sliding by 2.92% and 2.44%, respectively.

Auto stocks were also among the worst performers.

Porsche and Volkswagen ended the session down 2.59% and 2.15%, respectively. Mercedes Benz Group and Continental fell by 1.15% and 1.58%, respectively, with BMW ending the day down 0.75%.

Disappointment over the Soc Gen strategic plan rollout weighed on bank stocks. Commerzbank and Deutsche Bank declined by 1.42% and 1.91%, respectively.

The Tuesday Session

The futures markets are pointing to a mixed Tuesday session. The DAX is up 9 points, while the NASDAQ mini was down 5.5 points.

Finalized Eurozone inflation figures for August will influence buyer appetite. Considering the market sensitivity to hawkish ECB commentary, upward revisions to core inflation would pressure the DAX.

According to prelim figures, the annual core inflation rate softened from 5.5% to 5.3%, while the annual inflation rate held steady at 5.3%.

Beyond the numbers, investors should consider ECB Executive Board member speeches. Executive Board member Frank Elderson is on the calendar to speak today.

FOMC Meeting Kickoff Likely to Overshadow US Housing Sector Numbers

Later today, US housing sector numbers are unlikely to influence investor sentiment. Economists forecast declines in housing starts and building permits. However, the FOMC meeting gets underway today, which will likely limit the impact of the numbers on market risk sentiment.

Fears of upbeat revisions to GDP, inflation, and unemployment and hawkish Fed Funds rate projections will continue to test the appetite for riskier assets.

Short-Term Forecast

Upward revisions to Eurozone inflation figures would pressure the DAX. The ECB remains wary of inflation, exposing the DAX to hawkish ECB commentary. However, the Wednesday Fed interest rate decision and FOMC economic projections are the biggest threat to the DAX and riskier assets.

DAX Technical Indicators

Daily Chart

On Monday, the DAX broke below the trend line and the 50-day EMA, sending bearish near-term price signals. However, the DAX remained above the 200-day EMA, affirming longer-term bullishness.

A break below the 15,663 support level would signal a DAX move to the 200-day EMA and 15,459 support level. Upward revisions to Eurozone inflation numbers and hawkish ECB chatter would weigh. However, buyer appetite will likely intensify at 15,500, with the 200-day EMA confluent with the 15,459 support level.

Softer Eurozone inflation figures would support a DAX break above the trend line. A break above the trend line would signal a DAX move toward the 16,007 resistance level.

The 14-Daily RSI reading of 46.35 indicates a DAX break below the 15,663 support level before entering oversold territory.

4-Hourly Chart

The DAX sits below the 50-day and 200-day EMAs, sending bearish price signals. A DAX break below the 15,663 support level would give the bulls a look at 15,500 and the 15,459 support level.

A DAX break above the trend line and 50-day EMA would bring the 200-day EMA into play. However, sellers will likely cap the upside at the trend line, with the 50-day EMA confluent with the trend line at $15,785.

The 46.40 RSI reading signals a DAX break below the 15,663 support level before entering oversold territory.

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