DAX Index: Eurozone and US Inflation to Dictate ECB and Fed Moves and DAX Trends

Highlights

• The DAX rallied 1.09% on Wednesday, ending the session at 16,167.
• Softer-than-expected German inflation numbers fueled a breakout to a session high of 16,209.
• On Thursday, Eurozone and US inflation are focal points for the global financial markets.

Wednesday DAX Overview

The DAX rallied 1.09% on Wednesday. Following a 0.16% gain on Tuesday, the DAX ended the session at 16,167.

German Inflation

On Wednesday, German inflation figures for November supported bets on an H1 2024 ECB rate cut. The annual inflation rate softened from 3.8% to 3.2%. Economists forecast 3.5%.

Significantly, the softer inflation numbers contrasted with earlier ECB warnings that inflation could rise over the near term.

Earlier in the session, better-than-expected stats from Italy and Eurozone economic sentiment figures contributed to pre-inflation gains.

US GDP Report and Fed Speakers Send Mixed Signals

US economic indicators failed to reverse gains from earlier in the session. The US economy expanded more than expected in Q3, delivering uncertainty about an H1 2024 Fed rate cut. However, the DAX recovered from an immediate pullback.

Dovish comments from FOMC voting member Christopher Waller countered mixed signals from Fed speakers on Wednesday. On Tuesday, Waller favored a rate cut if inflation continued to soften over the next five months. Waller was previously a Fed hawk.

The DAX wrapped up the session in positive territory. However, investor caution about US inflation left the US equity markets with a mixed Wednesday session.

On Wednesday, the Dow gained 0.04%, while the Nasdaq Composite Index and S&P 500 fell by 0.16% and 0.09%.

The Wednesday Market Movers

Infineon Technologies led the way, surging 4.16% on softer inflation figures and bets on a less hawkish ECB rate path. Retail stocks also made solid gains in hopes of a pickup in consumer spending. Zalando SE and Adidas rallied 3.42% and 3.25%, respectively.

German auto stocks enjoyed a positive session. BMW and Mercedes Benz Group ended the day up 3.12% and 2.29%. Volkswagen (+1.71%) and Porsche (+1.87%) also made gains.

Eurozone Inflation and the ECB in Focus

On Thursday, German retail sales, Eurozone inflation, and euro area unemployment numbers will draw investor interest. While retail sales and unemployment figures need consideration, inflation could be the focal point.

Softer inflation numbers would further support bets on a less hawkish ECB rate path, supporting riskier assets. Economists forecast the Eurozone annual inflation rate to soften from 2.9% to 2.7% in November.

With inflation in focus, investors must also consider ECB commentary. ECB President Lagarde is on the calendar to speak. Reaction to the Eurozone inflation numbers will move the dial.

US Inflation in the Spotlight

On Thursday, US inflation numbers will influence the appetite for riskier assets. Softer-than-expected inflation figures could support bets on an H1 2024 Fed rate cut. Economists forecast the US Core PCE Price Index to increase by 3.5% in October year-over-year vs. 3.7% in September.

After the hotter-than-expected Q3 GDP numbers, an H1 2024 Fed rate cut could also support a soft landing. However, personal income and spending figures must signal a weaker consumer spending outlook to allow the Fed to take its foot off the gas.

Other stats include US jobless claims, pending home sales, and the Chicago PMI. However, these are likely to play second fiddle to inflation and personal income/spending numbers.

With US inflation in focus, investors must consider any Fed reaction to the numbers. Fed Vice Chair John Williams is on the calendar to speak.

The futures markets pointed to a positive start to the Thursday session. The DAX and the Nasdaq mini were up 26 and 29 points, respectively.

Short-Term Forecast

Near-term trends will hinge on the Eurozone and US inflation numbers from Thursday. Softer inflation figures would raise bets on H1 2024 rate cuts. Less hawkish rate paths for the ECB and the Fed would support DAX-listed stocks.

DAX Technical Indicators

Daily Chart

The DAX remained above the 50-day and 200-day EMAs, with the EMAs affirming bullish price signals.

A DAX move through the Wednesday high of 16,209 would bring the 16,290 resistance level into play.

Eurozone and US inflation numbers are the focal points on Thursday.

However, a break below the 16,142 resistance level would support a fall to the 16,004 support level.

The 14-day RSI reading of 75.09 shows the DAX in overbought territory. Selling pressure could intensify at 16,200.

4-Hourly Chart

The DAX remained above the 50-day and 200-day EMAs, with the EMAs affirming bullish price signals.

A DAX return to 16,200 would give the bulls a run at the 16,290 resistance level.

However, a fall through the 16,142 support level would bring the 16,004 support level into play.

The 74.36 14-4 hour RSI shows the DAX in overbought territory. Selling pressure could intensify at 16,200.

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